Insolvencies in England and Wales are currently on an upward trajectory and have consistently been rising month on month.

Given the current challenges that many businesses face, including the rising price of energy, higher interest rates and pre-existing debts that date back to the pandemic, this isn’t surprising.

However, looking ahead, will insolvencies continue to rise? And if they do, at what rate?

The current picture

The latest official Insolvency Service data shows that in the 12 months to August, there were a total of 20,512 business insolvencies in England and Wales.

This figure is up 16 per cent on all previous 12-month periods since 2019. If we look back further, the 12-month average rate of insolvency is 26 per cent higher than in any given calendar year between 2014-2018.

For the month of August alone, there were 1,348 company insolvencies. This is 43 per cent higher than in the same month in the previous year, and 42 per cent above the number of insolvencies registered in August 2019 before the pandemic.

While the number of corporate insolvencies is down nine per cent from a peak earlier this year in March, it is still higher than it has been historically.

What’s more, the 12 monthly rolling data suggests an upward trend, which has continued to rise at a consistent pace for more than a year.

In fact, a comparison of the annual data shows that the 12-month moving average is up 72 per cent on last year’s figure.

The latest full data from the Insolvency Service, also shows that the types of insolvency are changing as well, with:

• Four times as many compulsory liquidations in August 2022 than in August 2021
• Twice as many administrations as a year ago
• Creditors’ Voluntary Liquidations (CVLs) were up 33 per cent in the last year.

The challenge ahead

These figures are concerning, and the outlook ahead doesn’t look much more positive. Businesses throughout England and Wales are having to deal with growing costs, increased uncertainty and less spending by consumers on their services and products.

Rising inflation is perhaps the biggest concern, particularly for indebted businesses. Given that the rate of inflation keeps rising, it is almost inevitable that the Bank of England will continue to increase the base rate.

This will force lenders to increase their own interest rates and will see other organisations, such as HM Revenue & Customs, also increase their rates on debts.

This will make the cost of acquiring new finance higher, but also drive up the fees to service existing debts.

This, added to the rising cost of energy and other supplies, is squeezing the cash flow and profitability of many businesses, across a variety of sectors.

While businesses would like to drive up prices to meet these costs, they are themselves hampered by the appetite of consumers and clients, and their limited spending powers.

Even where they do decide to push up prices and pass on costs, they are ultimately only contributing to rising inflation, which in turn affects their debts and borrowing.

Given that many businesses will be dealing with similar issues, you also need to be cautious of late payments, which have consistently been on the rise for a number of years.

Based on these factors, it seems that a continuing upward trend in company insolvencies is most likely in the weeks and months ahead, which could be accelerated if inflation and interest rates also continue to rise.

If you need any insolvency advice, please speak to our experienced team today.