Sharp rise in number of firms facing insolvency and financial distress

The number of firms going out of business or facing serious financial distress has risen sharply this year, according to the latest figures. 

Carly Davies, our Debt Control Manager reports.

The Insolvency Service says there were 5,629 corporate insolvencies in Q2, an increase of 12.7% compared to Q1’s figures of 4,995, and an increase of 81.3% compared to Q2 2021 (3,105).  

Meanwhile, the Red Flag Alert produced by the recovery, financial advisory, and property services consultancy, Begbies Traynor, shows there has been a 37% increase in the number of businesses in critical financial distress over the last year. 

There has also been a considerable increase in the use of County Court Judgements to collect corporate debt – with CCJs in 2022 approaching the total for the whole of 2021. 

Christina Fitzgerald, President of insolvency and restructuring trade body R3, said: “The figures show the highest levels of corporate insolvency since 2012. This has been driven by an increase in all forms of insolvency process – but Creditors’ Voluntary Liquidations have peaked to their highest recorded figure of 4,908, suggesting that many directors are opting to close their businesses as they lack confidence in their trading prospects in the current climate.  

“The steady rise in Compulsory Liquidations we’ve seen since the start of the year also suggests that creditors are now making use of their power to issue winding-up petitions to try and claw back monies they are owed.   

“For company directors concerned about their prospects in the months ahead, now is the time to make sure they have a clear plan in place for the future.” 

Ric Traynor, executive chairman of Begbies Traynor, said: “With inflation near 10%, and showing little sign of abating, there can be no doubt that things are going to get worse for UK businesses before they get better.  

“Rising insolvency rates, combined with our own evidence from speaking to the directors of distressed companies, highlight the impact of rising costs on businesses. The very same directors, who benefited from Government-backed Covid support loans to get them through the pandemic, are now telling us that they are simply unable to repay these debts, plus they are having to deal with rising wage demands and higher input costs.  

“Additionally, the anticipated double-digit rise in business rates next April will heap more pressure on vulnerable businesses, despite some benefiting from the recent revaluation.  

“With this latest research showing almost 600,000 companies in significant financial distress, we would expect the weakest to enter insolvency over the next two years.”  

If you would like any advice about debt collection and credit control, please contact Carly on 01228 516666 or click here to send her an email.