The quarterly UK insolvency statistics (covering April to June 2022 inclusive) were released on 2 August 2022. They show that there has been an 81% rise in company insolvencies in England and Wales when compared with the same quarter in 2021, with the total number of company insolvencies in Q2 being the highest since Q3 2009. Significantly, creditors’ voluntary liquidations soared to 4,908, the highest number since the records started in 1960. The number of insolvencies look set to remain high for some time yet, given the difficult economic climate. This quarter saw a 13% rise in insolvencies as compared with Q1 this year.
The support measures offered by the government during the pandemic period saw the number of corporate insolvencies drop. It is unsurprising that as those measures have been withdrawn or reduced, company insolvency is on the increase. However, that is not the whole picture. One of the key factors pushing up the statistics is the cash flow difficulties that businesses are facing through a combination of the removal of COVID-related fiscal support measures, the rising cost of fuel and energy, the war in the Ukraine and high inflation. Consumer confidence and demand is being eroded and some businesses are struggling to find staff and source materials. This combination of significant cost increases combined with weakening demand is leading to a decline in general economic activity. Some companies are also saddled with COVID related debts which they are unable to repay. As inflation becomes the worst it has been since 1970, an ever-growing portion of companies are simply unable to continue trading.
The construction industry, retail, food producers and manufacturers with high energy costs are amongst the industries hit hardest recently given their susceptibility to supply chain fluctuations and rising energy costs. The current market consensus is that insolvencies may continue to rise in this challenging economic climate over the coming months before we start to see business performance improving and the rate of insolvencies begin to drop.
Authored by Charlotte Lamb and Lucy Dickinson Green.