Insolvencies soar as firms face soaring costs and consumer pressure

Business insolvencies have soared in England and Wales as Government Covid-19 support recedes and firms struggle against economic headwinds.

There were 2,457 insolvencies in March, up 16 per cent on the same time last year when support was in place, and they are now significantly higher than pre-pandemic levels, Government data published on Tuesday shows.

Restructuring experts, who report bumper demand, say soaring business costs and consumer weakness in the cost of living crisis are taking a heavy toll. They anticipate insolvency rates will remain elevated for some time.

Restructuring experts anticipate insolvency rates to remain elevated for some time

The vast majority of insolvencies in March were Creditors’ Voluntary Liquidations (CVLs), which enable directors to take control by closing an insolvent company when under pressure from creditors.

CVLs rose 9 per cent year-on-year but have almost doubled on March 2019 levels.

Compulsory liquidations more than doubled year-on-year to 288 but were in-line with pre-Covid levels.

Company Voluntary Arrangements (CVAs), which involve an agreement with creditors to repay a proportion of debts over time, were up 44 per cent year-on-year, while administrations were up 12 per cent. 

Insolvencies are well above pre-Covid levels 

Gareth Harris, partner at RSM UK Restructuring Advisory, said: ‘It is clear from these latest numbers and our increasing workloads that while we may not be in a technical recession, the economic headwinds are continuing to bite.

‘Although some confidence is returning in the wider economy those companies that are struggling are clearly seeing less options available to them than in the last four years.

‘The majority of the current insolvency figures remain “shut-down” style liquidations of smaller companies which we expect to peak soon before falling in the second half of the year.’

David Hudson, restructuring advisory partner at FRP, highlighted energy costs as a ‘significant threat to businesses’ stability’, warning that ‘as much as a fifth of retailers’ polled by the firm are not confident in trading through the next year with weakened government support.

The Energy Bill Relief Scheme came to an end in March and was replaced by the Energy Bills Discount Scheme, which offers a lesser degree of support to businesses.

The Government says this reflects falling wholesale gas prices, and ‘strikes a balance between supporting businesses over the next 12 months and limiting taxpayer’s exposure to volatile energy markets’.

Hudson added: ‘These levels of insolvency reflect the constant barrage that businesses have taken after months of soaring input prices, rising interest rates, and weakened customer demand.

‘More and more firms are at risk of tipping from ‘danger’ to ‘distress’. And with trading conditions still punishing, we can anticipate higher than-usual levels of insolvency for some time to come.

‘Additionally, nearly all Covid-19-era support measures have now closed to businesses, with many now having to service repayments on Covid support debt – only adding to the pressures they face.’

This post first appeared on Dailymail.co.uk