The increase in insolvencies during 2022 was driven by the most common type, Creditors' Voluntary Liquidations, which dropped sharply in 2020 and early 2021 when the global Covid pandemic wagged its tail and businesses fell in the backdraft. Small businesses led the way, 1.5 million of them having received the Government support loans to paper over cracks, only some of which remain above the survival line for many companies.
Last year CVLs rose last year to their highest number since records began in 1960, and were 21% higher than if they had risen in line with their pre-pandemic trend, according to the Insolvency Service.
The Financial Times produced a report on 29 May repeating a warning from the two insolvency and restructuring businesse in the UK that corporate distress caused by inflation and rising interest rates is set to spread from smaller to larger UK companies. Ric Traynor, executive chair of Begbies Traynor, said smaller businesses had so far dominated rising levels of insolvencies and driven the number of liquidations above pre-pandemic levels.
He predicted that the number of Administrations, typically the domain of larger ditressed companies, was likely to pass the same threshold “towards the end of this calendar year”. The NTI newsroom reported in April that the number of company insolvencies rose after seasonal adjustment to 5,747 in the first quarter of this year, an 18 per cent increase compared with the same period last year, according to data from the Insolvency Service. Insolvencies declined 4 per cent, however, compared with the fourth quarter of 2022.
Meanwhile, Administrations increased 16 per cent to 318 during the first quarter, compared with the same period last year. This marked a 12 per cent drop from the fourth quarter of 2022. Ric is unperturbed by any of that, saying: “We expect to remain busy for the next few years at heightened levels of insolvencies as a result of what happened in the pandemic, Brexit, inflation [and] interest rates.”
All of us in our glorious profession know that construction is the biggest sector in terms of insolvencies, with the industry often operating on “very fine” profit margins that were affected by rising interest rates and inflation. Small, independent subcontractors suffered first because of a slowdown in payments during contractions. However, Ricr predicted that hospitality and retail companies would also continue to produce insolvencies and were particularly vulnerable as a result of inflation pushing up costs and declining consumer spending.