Corporate insolvencies jump in England and Wales after withdrawal of Covid support

Corporate insolvencies rose sharply in England and Wales in the second quarter, according to official data published on Tuesday, with voluntary liquidations reaching their highest quarterly level since at least 1960.

Between April 1 and June 30, there were 5,629 registered company insolvencies, up 13 per cent on the previous three months and 81 per cent higher than in the same quarter last year, the Insolvency Service said.

Company insolvencies are formal measures taken when a company becomes unable to pay its debts.

John Cullen, business recovery partner at accountancy firm Menzies LLP, said the rapid rise was “an indication of the severe cash flow pressures that many businesses are facing, which are exacerbated by soaring energy and fuel costs”.

Creditors’ voluntary liquidations reached 4,908 in the second quarter of 2022, the highest since 1960, when the Insolvency Service began collecting such data.

Businesses are facing the combined threat of soaring costs and weakening demand in the worst divergence of economic activity and inflation since the 1970s. Insolvency experts said the sharp rise was in part due to the withdrawal of government measures designed to support businesses through the coronavirus pandemic.

Official data last month showed that prices of materials bought by businesses rose at an annual rate of 24 per cent in June, the highest since records began in 1985.

At the same time, economic growth is faltering under the weight of high inflation and consumer confidence stands at a record low.

Cullen added that many businesses were also being hampered by supply and staff shortages, which were limiting revenues at a critical time.

Christina Fitzgerald, president of insolvency and restructuring trade body R3, said the record level of voluntary insolvencies suggested “that many directors are opting to close their businesses as they lack confidence in their trading prospects in the current climate”.

In the three months to June, all types of insolvencies increased, including compulsory liquidations, which rose 9 per cent on the previous quarter.

The number of corporate insolvencies dropped during the pandemic owing to government support measures, including temporary restrictions on the use of statutory demands and increased financial support for companies. But insolvencies are now 28 per cent higher than in the second quarter of 2019.

As measures such as the furlough scheme and the suspension of wrongful trading liability have been removed, “businesses are now facing the reality of their financial situation post-pandemic”, said Lucy Trott at the law firm Stevens & Bolton.

Claire Burden, partner in the advisory consulting team at wealth and accountancy company Evelyn Partners, said she was “concerned” that businesses were overburdened by Covid-related debt, including bounceback loans and HMRC arrears.

Several experts said they expected further deterioration in the coming months as the economy risks falling into a recession while interest rates are set to rise further.

“Looking ahead, we can, unfortunately, expect a further increase of insolvencies,” said Stacey Jones, partner at law firm BDB Pitmans.

She added that this was particularly true in sectors most affected by variations in cost and supply chain pressures and fluctuations in business confidence, such as retail, food producers, and manufacturers with high energy use.

Samantha Keen, UK turnround and restructuring strategy partner at EY-Parthenon, said: “We expect further insolvencies in the year ahead among larger businesses who are struggling to adapt to challenging trading conditions, tighter capital, and increased market volatility.”