Insolvencies at ‘jaw dropping’ level as debt industry warns UK economy ‘is not out of the woods yet’

More companies in England and Wales entered insolvency during March than at any point since monthly records started three years ago, according to official data that showed a 16 per cent increase on a year ago.

The Insolvency Service reported 2,457 corporate insolvencies last month, up from 1,784 in February.

The rate of companies falling into insolvency fell sharply with the onset of the Covid-19 pandemic, thanks to government support programmes and lockdowns slowing the progress of courts handling insolvency cases.

But with companies facing rising costs and a stagnant economy, insolvencies are again on the rise.

The Insolvency Service said creditors’ voluntary liquidations were the biggest driver of corporate insolvency in March.

“Businesses are struggling to secure financing and pay off their loans due to high interest rates and the wider impact inflation and consumer sentiment is having on sales and cash flows,” said David Kelly, head of insolvency at accountants PwC.

“Company insolvencies will likely continue to rise in the short term, making for a challenging spring,” he added.

Individual insolvencies also rose sharply in March, although were still down slightly on a year ago.

Breathing space applications – which holds off creditor action for 60 days so people in debt can reorganise their finances – rose to a new high in March, following their introduction in May 2021.

“People are still very worried about money and the economy, and are reluctant to spend on anything other than the basics,” said Nicky Fisher, vice president at insolvency and restructuring trade body R3.

Figures on Wednesday are expected to show annual UK consumer price inflation fell below 10 per cent in March, but still far above the Bank of England’s two per cent target.

Tim Symes, a partner in insolvency and restructuring, at Stewarts said: “The latest insolvency statistics are jaw-dropping.

“Not only because they are 16 per cent higher than the same month last year. The real drama is in the massive upward spike compared to last month: court-ordered liquidations rose by a staggering 82 per cent and voluntary liquidations by 34 per cent.

“Any suggestion that the UK’s economy is out of the woods looks fanciful against this bleak picture.”

Gareth Harris, partner at RSM UK Restructuring Advisory, said:  ‘It is clear from these latest numbers and our increasing workloads that while we may not be in a technical recession, the economic headwinds are continuing to bite. 

“Although some confidence is returning in the wider economy those companies that are struggling are clearly seeing less options available to them than in the last four years. The majority of the current insolvency figures remain “shut-down” style liquidations of smaller companies which we expect to peak soon before falling in the second half of the year.”

Kelly added: “Company insolvencies will likely continue to rise in the short term, making for a challenging spring. This is particularly the case following the collapse of Silicon Valley Bank, which has caused lenders to reassess risk appetites. However, hard hit sectors like hospitality and leisure might soon begin to reap the benefits of the weather improving, so we hope to see the number of insolvencies in these sectors dip .”

Insolvencies: a perfect storm

Nick O’Reilly, director of restructuring and recovery at MHA said he expected administrations to continue to climb this year as businesses face a very challenging environment.

He said: “After recent warnings, UK business administrations have now risen to pre-pandemic levels. As businesses continue to face a perfect storm of high energy bills, increasing interest rates and detrimental inflation, alongside little to no government support, we should expect administrations to continue to rise in the months ahead.”

“Fortunately, there are a lot of vacancies in the labour market which will limit the impact of job losses, keeping unemployment down and preventing a spike in demand for welfare payments.”

David Hudson, restructuring advisory partner at FRP, said: “These levels of insolvency reflect the constant barrage that businesses have taken after months of soaring input prices, rising interest rates, and weakened customer demand.
 
“More and more firms are at risk of tipping from ‘danger’ to ‘distress’. And with trading conditions still punishing, we can anticipate higher than-usual levels of insolvency for some time to come.
 
“Energy is one factor that will continue to pose a significant threat to businesses’ stability. While wholesale prices have been falling, the new government support scheme provides businesses with less protection from future volatility. As just one example of the impact this could have, as many as a fifth of retailers we recently polled were not confident in trading through the next year with this degree of reduced support.
 
“Additionally, nearly all Covid-19-era support measures have now closed to businesses, with many now having to service repayments on Covid support debt – only adding to the pressures they face.”

With Reuters

Food and drink manufacturer insolvencies jump more than 250 per cent

Insolvencies among food and drink manufacturers more than trebled in the past 12 months, from 39 to 143, according to Mazars.

The international audit, tax, and advisory firm said some food and drink manufacturers were struggling to stay afloat as they face soaring energy costs, supply chain disruptions and reduced consumer spending.

Prices for essential ingredients such as sugar and cocoa have also been hit by price surges, as supply is weakened by poor weather in grower countries and the war in Ukraine; in the past six months to March, sugar prices surged 29.4 per cent

To cover the rising costs of production, some manufacturers are being forced to raise prices to already struggling consumers, hitting sales further.

The rising prices of products also means manufacturers have increasingly come into conflict with the supermarkets they supply to. Supermarkets have pressured manufacturers for a reduction in prices in a bid to keep costs down for them and consumers and rising prices is putting some manufacturers at risk of being “delisted” by supermarkets.

Rebecca Dacre, partner at Mazars said: “There has been a sharp rise in food and drink manufacturers coming to the edge of the financial cliff as their costs continue to rise. A downturn in inflation couldn’t come too soon for the industry.”

“Consumers have traded down and even cut overall consumption of food and drink.”

In the past year, food manufacturers such as Orchard House Foods, who supplied fruit and juice to the likes of Pret a Manger and Tesco, were forced to close their doors. Long-standing family businesses, such as Preston-based Singleton’s, which supplied its dairy products to the likes of Sainsbury’s and Morrisons, also entered insolvency.

Dacre added: “Manufacturers of food and drink are always hit hard when agricultural prices rise and the last year has seen many of those prices surge. Some of those businesses will be pushed into insolvency as a result.”