What Are The Main Factors Affecting UK Insolvencies In 2023?
With the end of 2023 fast approaching and the latest quarterly insolvency figures released by the Insolvency Service, it’s an apt time to reflect on the state of play in the UK this year. Company Insolvency Statistics for July to September 2023 alarmingly highlight that the last two quarters saw the highest number of UK insolvencies since Q2 2009. These numbers are largely driven by increased numbers of compulsory liquidations and administrations, as well as the highest number of Company Voluntary Liquidations (CVLs) since quarterly statistics were first reported in 1960.
Times are exceptionally tough for UK businesses at the moment and a number of factors are contributing to the high numbers of UK insolvencies in 2023. As a business owner or company director, it is essential that you are aware of these in order to protect your position in the market.
Supply Chain Disruption
Though lockdown might finally feel like a long time ago, the UK economy is still continuing to grapple with the repercussions of the COVID-19 pandemic. One of the major issues that has arisen as a result of the pandemic is ongoing supply chain issues. Businesses continue to experience delays in the delivery of goods and materials, leading to hard-hitting production delays, rising costs, and lost revenue. Without the resources to weather these disruptions and continue to meet customer demand at suitable profit margins, many UK businesses have been pushed to insolvency.
Bounce Back Loan Payments
During the height of the pandemic, the UK government offered a number of measures which provided valuable financial support to struggling businesses. These schemes have now been withdrawn and many businesses are finding that they can no longer pay their liabilities, pushing them towards forced or voluntary liquidation. In particular, many businesses that received support via the Bounce Back Loan scheme are struggling. The reality of having to pay back the loan is proving too much for many businesses in 2023 and those concerned that the financial burden is too great should consider their options, including the option to seek a bounce back loan extension, as soon as possible.
Rising Business Overhead Costs
As well as pandemic-related supply chain issues, the ongoing conflict in Ukraine has resulted in a significant rise in energy prices. This has drastically increased bills for many UK businesses, alongside rises in other overhead costs such as rent due to ongoing hikes in mortgage rates which are often passed onto tenants by landlords. Some support (such as the Energy Bills Discount Scheme) is available to help businesses manage rising costs but the financial strain is still great for many. Even solvent business owners may be considering extracting assets now through a Members Voluntary Liquidation (MVL), rather than continuing to operate and potentially finding themselves in an insolvent position.
Impact Of Cost Of Living Crisis On Consumer Spending
It is not just businesses that are experiencing the knock-on effects of rising costs. High inflation and energy price hikes mean that everyday budgets are not stretching as far as they once did and consumers have less disposable income for non-essential spending. This has a direct effect on any businesses that rely on a customer’s need for non-essential goods and services, like retail, hospitality and entertainment. Reduced footfall leads can reduce business revenue and therefore profit, increasing the risk of insolvency for UK businesses heavily reliant on consumer spending.
High Inflation
As well as reducing customer demand, high inflation poses a number of issues for businesses and is driving a rise in UK insolvencies. The latest Office for National Statistics data shows that UK inflation continues to remain above the Bank of England’s 2% target, with prices rising an average of 6.3% year-on-year in September 2023. This means that it is harder for businesses to purchase goods and services which eats into profit margins. High inflation is also a significant concern for businesses with significant debt or a dependency on borrowing as it makes it harder to borrow at a suitable rate. Rising costs and borrowing difficulties can be a tipping point for struggling businesses, leading to a number of UK insolvencies.
What To Do If Your Business Is Struggling
With a wide range of concerning factors contributing to a challenging economic climate, it is understandable that you might be concerned about the number of UK insolvencies in 2023. However, it is important not to panic if your business is faced with financial difficulty. There are a number of different options available for both solvent and insolvent businesses experiencing the pinch.
Your first step should always be to contact a licensed insolvency practitioner at the first sign of difficulty. They can expertly understand your current situation and talk you through the different options available as a suitable next step for your company. Whatever help you require, the experts here at My Liquidation can help you take the right steps. Get in touch today to discuss your options.