Why Has The Number Of UK Insolvencies Increased Recently?

bar chart graphic showing increase in 2022

Throughout the second half of 2022, the number of UK insolvencies has continued to rise. The most recent monthly insolvency figures showed that the number of corporate insolvencies for September 2022 was 16% higher than September 2021, and 11% higher than September 2019, so higher than pre-pandemic levels. The rise in UK insolvencies has been primarily driven by an increase in the number of Creditors Voluntary Liquidations (CVLs), with a whopping 1,379 CVLs taking place in September of this year. 

As you can imagine, the turbulent economic climate that we’ve been living in for the past few months has had a huge role to play in causing businesses to close their doors. However, there are a number of different factors that have all worked together to drive this recent increase. Let’s take a closer look at the specific factors that are causing UK insolvencies to rise, and what business owners can do to protect their enterprises. 

Withdrawal Of Covid Support

At the height of the pandemic, the government offered financial support to UK businesses in order to help them survive what was an incredibly difficult period for trade. The support offered included schemes like the Recovery Loan Scheme, Bounce Back Loans, the Job Retention Scheme, and reduced VAT rates. These measures gave many companies the life ring that they needed to stay afloat throughout the pandemic, however over the past year, these supports have started to be withdrawn. The withdrawal of Covid support measures has left many companies struggling to pay their liabilities, and consequently being forced to liquidate or choosing to do so voluntarily.

Rising Cost Of Energy & Fuel

Since the pandemic ended, demand for energy has soared whilst supplies have shortened. The conflict in Ukraine has reduced supplies of Russian gas, causing energy prices to skyrocket. This has drastically increased bills for both businesses and homeowners, leaving many business owners struggling to pay their overheads and concerned about the future. Unsurprisingly, this has played a big role in the number of UK insolvencies rising. The Energy Bill Relief Scheme is designed to offer businesses some support in this regard, as the economic climate remains volatile. With intense financial strain and concerns for the future, many companies have chosen to voluntarily liquidate their companies and extract assets in a tax-efficient way. This includes solvent companies who are taking the proactive decision to enter a Members Voluntary Liquidation (MVL). 

Decline In Consumer Spending

You probably won’t be surprised to hear that the cost of living crisis has caused significant changes in consumer behaviour. With many people struggling to pay their household bills, whilst coping with the impact of rapid inflation, businesses are struggling to attract the custom that they need, resulting in an increased number of UK insolvencies. In short, people simply cannot afford to spend what they used to. Discounts and promotions have taken on  a bigger meaning for consumers, with more than half of shoppers saying that they aim to cut their spending on non-essential items and switch to cheaper brands. In order for companies to try and survive in this climate, marketing efforts are key, alongside constant reviewing of business operations. 

High Inflation

Inflation refers to the increase in price of something over time. We talked about rising energy  prices a second ago – this is the main reason that inflation is currently so high. As we mentioned previously, Russia’s invasion of Ukraine has led to increases in the price of gas, but has also increased food prices. The rate of inflation for food and non-alcoholic beverages rose by 14.6% in the year to September 2022, reaching its highest level since April 1980. Many employees are finding that their wages aren’t keeping up with rising prices, causing a further strain. The changes to consumer spending caused by high inflation present a huge problem to businesses, alongside the increased cost of raw materials and supply chain disruption that often comes with higher inflation. 

What To Do If You’re Concerned About Your Business

Looking at how significantly the number of UK insolvencies has increased recently, you’re certainly not alone if you have concerns about the future of your business. If your company is struggling financially, there are different options available. For insolvent companies, the best option may be to liquidate via a CVL, however there are also recovery options that may be suitable for different struggling businesses. If you have concerns for your company, whatever state it is in, your first step should be to contact an insolvency practitioner. They will be able to talk you through the options that might be available for your company, and the next steps to take. Don’t let issues escalate, resulting in the potential for your business to be forcibly wound up. 

Our experienced team at My Liquidation has successfully assisted companies of all shapes and sizes from various industries. Whatever help your business requires, we can ensure you’re taking the best steps forward. Please don’t hesitate to get in touch to discuss your options. 

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