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Company Insolvencies on the Rise

Company Insolvencies Rise 21% in November 2022 in the UK 

Going by data from the Insolvency Service, England and Wales experienced a steep rise in annual insolvencies (21%) in November, which accounted for the second-highest monthly figure dating back to 2019. The only month that topped this figure was March, which can be attributed to pandemic-related factors. 

Overall, this is an unfortunate trend that should concern the UK government, especially after the Bank of England admitted that they were under a lot of pressure. So, what does this mean for businesses? 

Insolvency statistics November 2022: Key Takeaways

The total number of registered company insolvencies was 2,029 in November 2022, and this represented: 

● A 21% rise compared to the total insolvencies in the same month of the previous year (1,676 in November 2021). 

● A 35% rise compared to the insolvencies in the same month three years ago and before the pandemic (1,505 in November 2019). 

In summary, the total number of compulsory insolvencies or company voluntary arrangements is seeing a significant rise from the lows experienced in the middle of the Coronavirus pandemic. For instance, creditors’ voluntary liquidations or compulsory liquidations in November 2022 were 290, 5 times more than in the same month of 2021, and 7% higher than in the same month of 2019. There was also an increase in individual voluntary arrangements in the same month. 

There were fewer business insolvencies and restructuring plans registered during the pandemic in 2020 due to government support to cushion against the effects of the Coronavirus through debt relief orders. The average quarterly company insolvency in the first quarter of 2020 was slightly lower than the averages from 2019 and 2015. Unfortunately, the government has slowly halted key support incentives since the second quarter of 2020, which was easily a lifeline for many small businesses. unable to pay debts 

Why has this happened?

While several factors have likely played a part in the rising corporate insolvency, the main ones are difficulty in meeting debt obligations, rising energy costs, supply chain disruptions, and rising costs of raw materials. This is according to data from the Business Insights and Impact of the UK economy. It’s also possible that the increase in monthly insolvency statistics seen since 2021 represents some natural adjustment from the dip in 2020. 

In explaining the increasing insolvencies, the Insolvency Service blamed the increasing winding-up petitions by Her Majesty’s Revenue & Customs (HMRC). Case in point, the compulsory liquidations in October and November were significantly higher compared to the same months before the pandemic due to 95 petitions presented by just one bank. 

In November 2022, 1595 creditors voluntarily liquidated their businesses (individual insolvency national statistics), representing a 5% rise from the same month in 2021 and double the number in 2019. The head of insolvency at accounts PWC, David Kelly, further pointed out that rising interest rates, supply chain challenges, and energy costs are taking a toll on businesses as the new year begins. Monthly company statistics paint a bleak future for businesses, especially in the hospitality, retail, and construction industries.

If you are struggling to see a way forward with your business finances, contact us at Hayvenhurst Accountancy Services and we will offer you advice and support. We offer a UK-wide accountancy service with a local feel. We have a team of experts in all sizes of businesses and industries and commit to matching you with the right member of our team.

Trends in energy costs 

The total price indices for natural gas and fuel have experienced a steep spike since the start of 2021. Gas prices, mainly, saw a 70% increase in the first quarter compared to the same quarter in 2021. 

Since gas dominates the energy mix and power generation in the UK, it has a major effect on how businesses spend on energy. Additionally, fuel prices contribute to the total fuel-related costs incurred by companies. 

At 43%, gas accounts for the country’s largest inland energy consumption of primary fuel in 2021. 

What the numbers say 

Data from the Office for National Statistics show that 1 in 10 businesses in the UK reported a risk of insolvency ranging between moderate and severe in August 2022. At the same time, 22% of the businesses singled out energy prices as the main threat to the continuity of their venture. This represents a 15% increase from February of the same year. However, in companies with 10-49 employees, the figure was higher at 30%. 

The data also revealed the most affected business sectors in the rising insolvency trend. In England and Wales, the main company insolvencies registered were manufacturing, construction, wholesale and retail services, food and accommodation sectors. Together, these businesses were responsible for more than 50% of the total insolvencies in the year’s first half.

Business implications 

Already, big-name brands are starting to feel the pinch as retailers reeling from the high economic downturn find themselves in a challenging situation. For instance,, the online furniture brand, and fashion houses M&Co and Joules filed for insolvency not too long ago. 

Also, many companies continue to struggle with post-pandemic debts, which the rising interest rates and a drop in demand have only compounded. This is according to the head of the advisory at Evelyn Partners, Claire Burden. She continued to say that there are more worried directors today who find it hard to keep their businesses above water. While the companies might be doing good, the culmination of spiking energy costs, interest rates, and wage demands is simply overwhelming to the continuity of the business.

Meanwhile, David Hudson, partner at FRP Advisory, added that a good chunk of Britain’s businesses would have little to smile about over the festive season as trading conditions continue to get more turbulent. As business costs rise, resulting in slimmer margins for companies, we can only expect insolvencies to remain in the headlines in the months ahead.

In Summary 

The 21% rise in business insolvencies in the UK is proof of the harsh economic times and the demanding situations that many businesses are finding themselves in. As energy costs continue to increase and other challenges compound the problems, we can only expect a continuation of this unfortunate trend in the new year and 2023 overall. As such, it is crucial for businesses to find ways of mitigating the risks of insolvency and for policymakers to consider measures to support struggling businesses during this challenging time.

If you need help or advice on your business finances, please get in touch with us at Hayvenhursts Accountancy Services today at 02920 777 756 or by using our enquiries . We can arrange a consultation with one of our experts, and we commit to getting to know you and your business and finding ways of helping you move forward and supporting you using our knowledge and experience.

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