Insolvencies reach four-year high as firms battle rising costs

The number of company insolvencies has risen by 51% in a month to reach a four-year high as companies battled rising costs and interest rates, according to the latest government figures.

The figures show that there were 2,552 corporate insolvencies in England and Wales in May. The figure was also 40% higher than in May last year and 89% higher than in May 2019 before the pandemic.

Fran Henshaw, North West chair of the insolvency and restructuring trade body R3, says: “Three years of economic turmoil is taking its toll on businesses. The latest corporate insolvency figures are the highest since January 2019. 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 rise in insolvencies was driven by an increase in Creditors Voluntary Liquidations, (CVLs), a process where directors close their business voluntarily, which are also at a near-four and half year high and more than twice the number they were in May 2019.

Fran, who is also Head of Corporate Recovery and Insolvency at Manchester based accountancy firm Beever and Struthers, added: “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. 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, firms will have to pay to keep their premises, staff and customers cool, which will hit any potential savings.

“Going forward, interest rates and inflation will continue to create challenges for businesses seeking funding over the summer, and could be the tipping point for those businesses who are hanging in there at present.

“Directors need to remain vigilant to the signs their business could be distressed and seek advice if they start to see stock levels increase, cashflow become an issue, or begin to experience issues paying rent, staff or bills. I urge anyone who is worried about their finances to seek advice from a qualified source as soon as possible.”