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Company Insolvency And Liquidation
istock_insolvency_Olivier Le Moal

Insolvencies up 32% as businesses face tough 2023

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December’s corporate insolvencies show the effect of the toxic combination of high interest rates, inflation, rising energy costs, pressures on supply chains and the aftermath of Covid and Brexit as the number of businesses going bust continues to hit record levels. 

 

17th Jan 2023
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The insolvency service today reported that in December last year there were 1,964 company insolvencies in England and Wales – 32% higher than the previous year and 76% higher than pre-pandemic numbers.   

Company insolvencies have continued to hit record levels since the government’s temporary insolvency measures set up during the pandemic resulted in historical lows but the number has skyrocketed after the support was lifted and there has been an increase in winding-up petitions.  

Of the 1,964 company insolvencies last month, 1,659 were as a result of Creditors’ Voluntary Liquidations (CVLs) – this was 22% higher than the previous year. The company insolvencies also comprised 183 compulsory liquidations (which was more than three times higher than December 2021 but considerably less than the 290 in November) and 10 Company Voluntary Arrangements (CVAs). 

The number of company insolvencies reported in December fell 3.25% to the 2,029 reported in November 2022. Administrations also dropped in December compared to the previous month from 134 in November to 112 last month. 

Scotland also saw a similar increase in company insolvencies, with 114 recorded in December, which was 28% higher than the previous year. Northern Ireland also saw an uptick in company insolvencies compared to the previous year, with 15 registered in December which is a 67% increase. 

Trying times for businesses

Despite the fall in administrations and company insolvencies, the outlook is still gloomy compared to the previous year, with an increase in CVLs and compulsory liquidation numbers demonstrating the strain businesses are still experiencing from the pressures of Covid, Brexit, changes in legislation, rising energy costs, requests for increased staff wages and the ongoing economic crisis. 

R3’s Christina Fitzgerald said the increased corporate insolvencies are because of “a combination of directors choosing to close their businesses and creditors chasing unpaid debts”. 

She added that December and January are critical periods for firms and in addition to the ongoing supply chain issues and rising costs, businesses must also contend with strikes, bad weather and the ongoing economic challenges in the UK.

“These challenges aren’t going to go away overnight – and directors are very concerned about the effects of energy and staff costs, as well as fears about how the cost-of-living crisis will impact on their income this year.”

RSM’s UK restructuring advisory partner Gareth Harris also expressed concern about CVLs continuing to drive the insolvency numbers. 

“This is, in reality, just the ‘excess insolvencies’ that were suppressed during the pandemic and the times of unprecedented government support. What we are yet to really see is an increase in those good, slightly larger companies who are now struggling due to the toxic combination of accumulated debt, high interest rates, inflation, labour shortages and supply chain issues.” 

To illustrate the impact of this economic outlook on businesses – especially due to the squeeze on supply chains because of the difficulties in Ukraine – Mandeep Kaur Virdee, an insolvency specialist and CEO at KaurMaxwell, shared an example of the struggles one of their clients recently experienced. “One of our clients recently dealt with a sale of a business that grew in excess of £30m in four years, but due to its soaring shipping costs increasing by 700% (among other things), simply could not keep up.”

Take action sooner

But with corporate insolvencies still continuing at record levels, Colin Haig from Azets is calling on business owners to take action sooner, rather than wait and find out that insolvent liquidation is the only option. 

“Unfortunately, too many management teams are not facing the problems early enough and when the decline accelerates often an insolvent liquidation is the only option. That’s not a great option because it’s an end-of-life process for the business.” 

Replies (8)

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By Justin Bryant
18th Jan 2023 10:13

Surely the high company insolvencies is almost entirely due to BBL CVLs (which in turn is almost entirely due to HMG incompetence).

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By johnjenkins
19th Jan 2023 10:48

There will be a lot more to come. Get rid of IR35. Make sure Landlords can claim the 40% (if in bracket). HMRC to keep their noses out of employment status. etc.etc. Then not only will you see the economy grow, the treasury coffers will get fuller.

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By tedbuck
19th Jan 2023 11:01

It sounds as if the answer is get rid of lefty Sunak and his Chancellor and bring back Liz Truss but with a bit more caution about how she goes about things.

It is a bit terrifying when looking at politicians to see how their minds (if they have them) work. Look two days ahead and that's fine never mind the future. It's certainly been like that for the last 20 years - run the country's economic policy on tomorrow's headlines.

Not much hope for recovery and sanity there and big business doesn't help with the current attitude of 'beggar the customer we'll do what we want and beggar the employees as long as the Directors get their millions.' All the thought for customers and staff exists only in small businesses.

And then there are the unions shouting 'Me, me ,me and beggar the rest of you'.

Doesn't look good for the future.

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Replying to tedbuck:
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By johnjenkins
19th Jan 2023 11:35

My insolvency practitioner friend asked me the other month "why is everything broken?". I said you can't expect a 2 year pandemic and lockdown not to have consequences. That together with greed rearing its ugly head and HMRC wanting to tax middle England up to the eyeballs and you have a recipe for disaster. Bring back Truss, at least she had the backing of the Tory members not the MP's who haven't got a clue but just want to keep the "old boys" network.

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Replying to johnjenkins:
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By C Graham
19th Jan 2023 16:45

truss supported the proxy war as does Sunak - forget pandemics, this is mismanagement of the debt book diverting arms and money to Biden and his business interests in Ukraine. But government never looks after the people who look after it! Britain deserves better. Labour would be worse.
Totally agree that IR35 was and always will be a terrible system - never brought in the money for HMRC and is like bringing in a clocking in system onto a factory floor when the factory is closed down.

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Replying to C Graham:
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By johnjenkins
20th Jan 2023 09:14

There is a train of thought that it doesn't matter if Ukraine falls to Russia. The west does business with one or the other. That would probably apply to a lot of the "old USSR". The problem comes when "the world is not enough".

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By moneymanager
19th Jan 2023 13:04

It's official, the destruction, by the uncontrolled demolition of the entire economic and social structure of pretty much the world is all going according to plan.

"Once is happenstance, twice is a coincidence, three times is enemy action" Ian Flemming - Goldfinger

None of what makes no sense but is happening anyway is a mistake or an "unfortunate consequence", the four million plus Ukrainians that starved in the "lockdown" of the Ukrainian Holodomor was the result of the policy of intent, food riots are spreading, Mark Rutter wants to effectively close all Dutch farms and build the "Tristate City" on the land crossing the Belgian and German borders and DEFRA wants to defarm an area the size of Lancashire and hill farm grazing, with ZERO inputs, is being taken over by corporate investors to ofsett the carbon footprint of executives jetting of to Davos et al.

The only question is for how long are we going to accept being suckered?

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By Postingcomments
20th Jan 2023 11:50

It's the age old playbook. When you've rinsed the system until it fails, you initiate a war to reset it all and so that pretty much any action can be justified - and imposed. You can also unite the people with a common enemy so that they don't look at their own leaders and what their role was in it all. You make them so they're just grateful to be able to eat.

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