Business insolvencies up 27%

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Corporate insolvencies in England and Wales hit 2,163 in June, up 27% year on year as inflation and rising costs hit businesses

This was higher than levels seen while the government support measures were in place in response to covid-19 and also higher than pre-pandemic numbers which stood at 1,466 in June 2019.

Compulsory liquidations in England and Wales were up 77% to 260 due to increased winding-up petitions presented by HMRC, Insolvency Service figures revealed.

Over three months, insolvencies hit 6,403, up 16% marking the first time quarterly insolvencies have topped 6,000 since the financial crisis.

Worst hit sectors were construction and hospitality, while there were signs of pressure on the property sector with estate agents closing at the highest rate seen for several years.

Gareth Harris, partner at RSM UK Restructuring Advisory, said: ‘The monthly figures confirm what we are seeing on the ground - that UK corporates are struggling to cope with a challenging combination of rising interest rates, sticky inflation, higher wage expectations whilst recovering from a hangover of Covid debt.

‘The disappointingly high level of both types of liquidation processes shows that HMRC is increasingly active, and that many directors are facing the very difficult decision to shut their businesses - with the construction and retail sectors being hit hardest.’

Companies need to take action to protect their businesses by controlling costs and reviewing profit projections.

Colin Hardman, restructuring & recovery partner at Evelyn Partners, said: ‘Early action and communication with key stakeholders, including banks and investment funds, is the key to survival for businesses. If they are facing difficulties, the sooner they seek appropriate professional advice, the more options they’ll have and the greater their chances of rescuing the business and saving jobs. Even if businesses aren’t teetering on the edge, working capital and cash management should always be a focus.

‘As well as a 12-month forecast, companies should prepare a rolling 13-week rolling cash flow forecast to ensure that they are aware of their cash burn and therefore the time available to implement a recovery plan. If performance does dip, business owners should ask whether they know where the improvement opportunities are or the scope for reducing costs.’

The latest figures are the worst since the 2009 financial crisis, with little sign there will be improvement in the immediate future.

Nicholas Hyett, investment manager at Wealth Club said: ‘The combination of higher interest rates and a slowing economy is taking its toll, with quarterly insolvencies nudging over 6,000 for the first time since the financial crisis. The only other time things have looked this bleak was during the early 90s recession.

‘The increased pressure doesn’t seem to have found its way into employment numbers yet, and the labour market remains strong, but we’d expect that to change in the months ahead. Unpleasant though it sounds that would be a relief for the Bank of England – which is looking to take some heat out of the economy. 

‘In the long run, exactly what the current spate of insolvencies means for the UK economy is less clear.

‘There’s been much debate about zombie companies in recent years – businesses that are barely profitable, or heavily indebted that have managed to muddle through in a world where cheap bank loans were easily available. Those companies are likely to be early casualties of rising interest rates. However, if their demise frees up staff and properties for use by more profitable companies, the long run effect could be a boost to UK productivity.’

For individuals, 643 bankruptcies were registered, which was 29% higher than in June 2022, but less than half of pre-2020 levels.

If you have questions about redundancy, visit BrAInbox today where you can find answers to questions like Can I make employees redundant via video call?

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