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Insolvencies rise as winter bites

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The November report from the Insolvency Service has revealed yet another month of increases in insolvencies across the board, with energy prices and inflation a chief cause for concern among UK businesses.

14th Dec 2022
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November’s insolvency statistics provided by the Insolvency Service today show a continued rise in the number of UK companies sliding into insolvency since the government’s phasing out of the coronavirus support package last year.

According to the report, there were 2029 insolvencies during November 2022, 21% higher than in the same month in the previous year and 35% higher than the number registered three years prior. The newly released figures are also up on October, which saw 1,948 businesses shut their doors.

Creditors’ voluntary liquidations

Similar to previous reports, creditors’ voluntary liquidations (CVLs) have continued to be the key driver in rising insolvency statistics.

Of the 2029 insolvencies recorded for November, 1595 were CVLs. This is a 5% increase on November 2021 and a mammoth 50% higher than 2019. Scottish CVLs also saw an increase, being 13% higher than in November 2021 and 36% higher than pre-pandemic.

Aside from CVLs, compulsory liquidations increased during November as well, with the numbers 437% (5.4 times) higher than November 2021 and 7% higher than November 2019. 

On the other hand, company voluntary arrangements (CVAs) had seen no change from this time last year and had actually dropped from their pre-pandemic levels.

Inflation and energy

A survey from the Office of National Statistics (ONS) revealed that the ongoing energy crisis, as well as the increasing prices of goods and services, are the top concerns for businesses as we head toward the new year.

Of the 10,409 UK businesses surveyed, 25.1% said that energy prices were their main concern for December, while 27.1% said that the inflation of goods and service prices worried them the most.

Commenting on the news, Christina Fitzgerald, president of R3 said: “Companies have been battered by the pandemic, rising costs, reduced spending and increasing inflation, and a growing number are now turning to an insolvency process to resolve their financial distress.
 
“For many businesses, the Christmas and post-Christmas period is a critical part of their year and the time when a large percentage of their revenue is generated. However, given how stretched people’s finances are this year, it remains to be seen whether this will be a happy Christmas or a final one for these firms.” 

Heads in the sand

Looking ahead, Andy Davis, strategic advice director of R&I at Azets, believed that more liquidations were on the horizon as the economic outlook continues to paint a bleak picture of 2023. However, Davis also added that the sharp end of the recession can be dulled if businesses seek quality restructuring advice and support as soon as possible.

“These latest insolvency statistics for November continue the trend over the past three years and evidence a significant increase in the volume of companies feeling financial stress,” Davis commented. “In my experience, a company that recognises the need for advice and support at an early stage will have a wider range of options available to it and a much better prospect of avoiding insolvency, versus those that bury their heads in the sand.

“Directors should seek advice from an appropriate restructuring and insolvency practitioner, to help them better understand these options in order to save some or all of the business. Waiting until there is a liquidity crunch is just too late.”

Replies (2)

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By johnjenkins
15th Dec 2022 10:59

Unfortunately this is just the tip of the iceberg. Every now and then the business world has a "clear out" for whatever reason. This time it will be worse due to covid, brexit and change of working habits.
There is also a "tension" in the world which will have a knock on effect. Then, of course, you have the really rich who will sit on the sidelines waiting to invest in what comes out of the transition period.

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By Hugo Fair
15th Dec 2022 22:34

Circle of life ... 'twas ever so.

Even though it's no consolation when you're under the cosh, the cycle will always repeat.

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