Business insolvencies rise by almost a third as UK companies battle rising borrowing costs and consumer pressure.
- 2,163 companies declared bankruptcy in June, compared to 1,698
- There were also 260 forced liquidations in the year to June, an increase of 77%.
Business insolvencies in England and Wales rose 27 percent in the year to June amid rising interest rates and broader economic weakness.
Some 2,163 companies declared insolvency in June, up from 1,698 in the same period last year, new data from the Bankruptcy Service published by the government on Tuesday shows.
Insolvencies have skyrocketed among businesses since the removal of pandemic support measures and are now higher than pre-Covid levels.
Some 2,163 companies declared bankruptcy in June, compared to 1,698 according to data from the Bankruptcy Service
There were also 260 mandatory settlements in the year through June, representing an increase of 77 percent over the previous year.
The report explained that “the number of compulsory liquidations has risen from the record lows seen during the coronavirus pandemic”, partly as a result of “an increase in liquidation applications filed by HMRC”.
Forced liquidations are when a formal court order is filed, usually by a creditor, stating that the business owes a sum of money that it cannot pay.
Most of the insolvencies were creditor voluntary liquidations (CVLs), in which a company’s directors, having exhausted all recovery options, decide to wind up the business without a formal court order.
Nick O’Reilly, MHA’s director of restructuring and recovery, called for a review of business rates and a reform of the Covid-19 payment terms to help control the rising level of insolvencies.
He said: “The drop in customer demand, an economic downturn and a 5 per cent interest rate hike, plus high inflation and the cost of living crisis, have meant that businesses and small and midsize companies have had little time to build a healthy cash reserve or recover from the post-pandemic shock.’
O’Reilly added that many businesses are “considering closing or have closed their doors for good, and their crucial government initiatives are coming quickly to help stem the flow.”
Business insolvencies increased by 27 percent, which is mainly due to the higher number of CVLs.
He said: ‘Reforms within the trade tariff regime are urgently needed to encourage companies to invest, grow and innovate.
‘The Non-National Qualification Bill will introduce new business rates for property and building improvements and provide much-needed tax relief and breaks for the construction sector, however sectors including leisure and hospitality remain at the lurch
“The restructuring of the payment terms of the Covid-19 support will allow companies to have more time to pay and will allow them to internally restructure their commitments.
“Additional government assistance for businesses with outstanding covid-19 loans will further help them allocate resources efficiently and survive during this economic downturn.”
David Hudson, FRP’s restructuring advisory partner, added: ‘The question now is not whether default rates will rise in the coming months, but how high they will go.
‘Future failures will not be limited to smaller companies. As the impact of crashes ripples through supply chains and the cost of capital rises, more and more large companies, which may be more leveraged, will face financial pressures.
“On the ground, we are already seeing the first signs of this contagion through the business community.”