Corporate insolvencies rose sharply in England and Wales in December, as business costs soared, pandemic-related government support came to an end and the economic recovery lost momentum.
Data from the Insolvency Service on Tuesday showed that the number of registered company insolvencies reached 1,964. That is 32 per cent higher than in the same month of 2021, and 76 per cent higher than in December 2019, before the Covid-19 pandemic.
Corporate insolvencies are formal measures taken when a business can no longer pay its debts.
David Kelly, head of insolvency at the consultancy PwC, said businesses were facing many challenges “ranging from high inflation and rising interest rates to poor consumer sentiment and increasing raw material costs”.
He added that many directors were exhausted from the pandemic and the supply chain issues of the past few years, and may be “raising the white flag for insolvency as a consequence of this fatigue”.
UK inflation is expected to have remained above 10 per cent when data for December are released on Wednesday.
The Bank of England has lifted interest rates from 0.1 per cent in November 2021 to 3.5 per cent at present, the highest level for 14 years, pushing up borrowing costs for businesses.
According to data on Tuesday, wage growth has also risen at the fastest pace since records began in 2000, bar the period in which it was distorted by the furlough scheme during the pandemic.
At the same time, the economy in November was still smaller than before the pandemic and smaller than at its recent peak in May as high inflation hit household spending.
David Hudson, partner at FRP, an advisory firm, said the restructuring profession was “bracing for a year of more and more insolvencies” as “inflation is crushing demand, and leading to soaring overheads”.
PwC found that 346 winding up petitions were made in December. In the first 11 months of 2022, 2,990 petitions were made, more than triple the number in the same period in 2021.
These formal applications from creditors to shut down companies are considered a leading indicator of future distress and creditor sentiment, according to PwC.
Christina Fitzgerald, president of R3, the insolvency and restructuring trade body, said directors were “very concerned about the effects of energy and staff costs, as well as fears about how the cost of living crisis will impact on their income this year”.
Insolvency numbers were kept low during the pandemic owing to the government’s £154bn of financial support for businesses, as well as specific temporary measures that helped companies restructure and avoid entering administration.
The Insolvency Service is also chasing businesses who took Covid-related financial support to which they were not entitled. Hundreds of these companies have as a result filed for insolvency; most fraudulently claimed “bounce back” loans.
Tuesday’s data also showed that there were 183 compulsory liquidations in December 2022, more than three and a half times as many as in December 2021 and 8 per cent higher than in December 2019.
Creditors’ voluntary liquidations rose to 1,659 at the end of last year, 22 per cent higher than in December 2021 and more than double the figure in December 2019.