Member Article

Highest Corporate Insolvency Figures In Over Four Years Shows 'Economic Turmoil Taking A Real Toll'

The impact of the economic turmoil of the last few years has been laid bare by the highest monthly number of corporate insolvencies for England and Wales since the beginning of 2019

That’s the view of the North East chair of insolvency and restructuring trade body R3, Chris Ferguson, after the latest Insolvency Service statistics revealed a month-on-month increase of more than 50 per cent, from 1,688 cases in April up to 2,552 cases last month – and the increases on the same months in previous years are even more stark.

Corporate insolvencies were up by 151.9% on the May 2021 figure (1,013) and by 170.3% from May 2020’s total (944), while also increased by 89.3% compared to pre-pandemic levels in May 2019 (1,348).

The number of firms put into liquidation through Creditors’ Voluntary Liquidations (CVLs), a procedure initiated by directors of insolvent firms to close their companies, was more than twice as high last month as it was in May 2019.

Chris Ferguson, who is head of recovery & insolvency at Gosforth-based RMT Accountants & Business Advisors, says: “With these latest corporate insolvency figures being the highest we’ve seen since January 2019, it’s clearer than ever that the last three years of economic turmoil are taking a real toll on our businesses.

“The fallout from battling the effects of the pandemic, coupled with rising costs, increased creditor pressure, and high inflation, is causing more businesses to turn to an insolvency process to help resolve their financial issues.

“The key driver of the rise in numbers is the increase in Creditors Voluntary Liquidations, which are also at a near-four and half year high and more than twice the number they were in May 2019.

“More and more directors are running out of time and options, and are choosing to liquidate their businesses before the choice is taken away from them.”

Personal insolvencies across England and Wales also showed a sharp month-on-month increase last month, rising by 10.7% last month to 9,962 cases compared to 9,002 in April.

Chris Ferguson continues: “Firms are operating in a market where people are spending cautiously, costs are increasing and suppliers are chasing debts in an attempt to manage their own cashflow challenges, which is creating a tough climate for businesses of all sizes at a time where they needed an injection of cash.

“While the summer months might provide some relief from energy costs, stubbornly high inflation and further interest rate rises will likely mean that cash will remain tight for many businesses.

“The impact of interest rates rises and inflation will also continue to create challenges for businesses seeking funding over the summer, and could be a tipping point for those businesses who are hanging in there at present.

“Directors need to remain vigilant and seek advice where they start seeing signs of distress within their business, which can include stock levels increasing, customers withholding payments or businesses needing to delay payments to their own suppliers to balance their cash flow.”

This was posted in Bdaily's Members' News section by Julian Christopher .