While many businesses (particularly in the retail, leisure and hospitality industries) will have been hoping to capitalise on a busy festive period, sadly for many the busy period came too late as corporate insolvencies rose again in December. Overall, company insolvencies were 32% higher than December 2021, and 76% higher than in December 2019 (i.e. pre-pandemic levels).
Again, the rise is driven largely by an increase in creditors’ voluntary liquidations, which was 22% higher than the year before, but there was a notable increase in compulsory liquidations too – over 3.5 times more than the number of petitions seen in December 2021 - which demonstrates an increase in creditor pressure on struggling businesses. The Insolvency Service is reporting that the increase in compulsory liquidations is partly as a result of an increase in petitions presented by HMRC as it clamps down on historic non-payment of company debts. It should also be borne in mind that restrictions on winding up petitions during the pandemic meant that there were historically low levels of compulsory liquidations during that period, which accounts for some of the large numbers we are now seeing. Administrations and CVAs were also up in December 2022 when compared to December 2021, with an increase of 56% and 43% respectively.
It is hardly surprising that corporate insolvencies continue to rise amid soaring inflation, markedly higher energy costs and the cost-of-living crisis, coupled with the widescale withdrawal of government support for businesses emerging from the pandemic. Creditors are now seeking to call in long overdue debts while businesses struggle with decreased revenue. While the Energy Bill Relief Scheme was introduced by the government to assist businesses with the rising cost of energy through winter, many businesses will be thinking further ahead, with little clarity at this stage on which businesses will qualify for the more targeted support available to “vulnerable” businesses beyond March 2023. Arguably, the ‘silver lining’ is that many ‘zombie’ companies – which previously survived on the back of ultra-low interest rates and government support measures but with no meaningful prospects of future growth – are now finally throwing in the towel, which will hopefully lead to a much-needed reallocation of human and financial resources to new businesses.
With no end in sight to the current economic turmoil, expect to see more businesses folding as pressure continues to mount.