Member Article

June Fall In Corporate Insolvencies Can't Hide Longer-Term Business Challenges - R3

A sharp month-on-month fall in the number of corporate insolvencies across England and Wales shouldn’t disguise the longer-term challenges that North East firms are facing.

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 fall of more than 15 per cent, from 2,553 cases in May down to 2,163 case last month.

But despite this, the June figure is still 27.4% higher than the number of cases in the same month last year (1,698), 79.4% higher than June 2021’s total (1,206) and a massive 191.9% more than the 741 cases in June 2020.

The number of firms put into liquidation through Creditors’ Voluntary Liquidations (CVLs), a procedure initiated by directors of insolvent firms to close their companies, also fell last month, but it was still higher than before the pandemic.

Chris Ferguson, who is head of recovery & insolvency at Gosforth-based RMT Accountants & Business Advisors, says: “Despite the monthly fall in corporate insolvencies, levels are still higher than they were this time last year, and dramatically above what they were this time two, three and four years ago.

“The hangover from the pandemic is combining with a challenging trading climate caused by a number of economic issues, and despite a reduction in Creditors’ Voluntary Liquidations, a sizeable number of directors are still choosing to close their businesses while the choice is still theirs to make.

“Directors expect costs and wages to rise further as we move further into the year, and if these costs cannot be sufficiently absorbed or passed on, it could well be the final blow for those businesses that are just managing to survive.

“Businesses are trading in a time of cautious consumer spending and rising costs, which are hitting turnover and margins hard, while rising interest rates are another potential challenge, given the impact on the cost of borrowing which may price some firms out of the survival funding they need.

“Given the economic and business climate, we urge directors to be alert to the signs of financial distress, and seek advice if they find themselves facing issues such as problems with cashflow, rising stock levels or difficulties paying staff, taxes or suppliers.

“There are a number of options out there for resolving businesses’ financial issues, but the more time that passes without the problem being addressed, the more these options start to fall away.”

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