Massive rise in business insolvencies

The number of businesses in England and Wales becoming insolvent in the first quarter of 2022 rose to a 60-year high, with just under 5,000 company insolvencies, more than double the number in the same period last year, reveals the Insolvency Service.

The increase was driven by creditors’ voluntary liquidations (CVLs), which accounted for around 87% of all cases, reaching their highest quarterly level since the survey began in 1960.

This increase coincided with the phasing out of measures which supported businesses during the coronavirus pandemic, for example, the Government’s contribution to employee wages through the Coronavirus Job Retention Scheme, known as furlough. Plus, the suspension of wrongful trading liability, which allowed directors to continue trading without facing the threat of personal liability despite the uncertainty that their company may not be able to avoid insolvency in the future.

The number of compulsory liquidations also increased, but only accounted for 7% of all cases and remained lower than levels seen before the coronavirus pandemic.

Lower numbers of compulsory liquidations since the start of the pandemic are likely to have been driven in part by Government fiscal and other measures that were put in place to support businesses and individuals, including temporary restrictions on the use of statutory demands and certain winding-up petitions.

Meanwhile, the three industries that experienced the highest number of insolvencies in the 12 months ending the first quarter of 2022 were construction, wholesale and retail trade and repair of vehicles and accommodation and food services activities.

Taken as a whole, these figures point to an impending wave of business failures, with the combination of Covid-related support for firms being withdrawn and a rise in inflation affecting both business and consumer confidence.

Posted in Blog, Insolvency.