Insolvencies up as business challenges increase

Corporate insolvencies rose in July and were 67 per cent higher than in the same month last year, according to new data published by the government.

Insolvency practitioner and professional services firm PKF GM says alarm bells are ringing and that every business should be concerned. It is urging firms to seek advice if they are struggling – to ensure they have more options to secure survival.

The 1,827 insolvencies were 27 per cent higher than in July 2019.

However, they represent a rise of just 7.5 per cent compared to June this year.

Restructuring and insolvency professional Oliver Collinge, of PKF GM, said:“The large rise in corporate insolvency numbers is not surprising compared to this time last year. But alarm bells ring when there is a material increase on pre-pandemic levels, as we are seeing now.

“Many distressed businesses managed to keep afloat through Covid by using the high level of government support available. Most businesses are now repaying BBLS or CBILS loans and many are also still repaying HMRC liabilities deferred during the pandemic, and rising input costs are adding to these cash flow pressures.”

PKF GM is predicting challenging times ahead as cash flow pressure on businesses grows.

Oliver added: “The current headwinds will create challenges even for better-performing businesses, not only those that were already in survival mode. The inflation rate suggests there may be more interest rate rises to come, and there’s open talk of a recession. The cost-of-living crisis has led to the biggest fall in real pay on record, and households are reining in spending.

“Pressure on cash continues, and unfortunately, we expect to see heightened levels of business failures for some time to come.”

The increase in insolvencies has mostly been driven by Creditors’ Voluntary Liquidations (CVLs), where directors have chosen to place their business into an insolvency process. In July 2022, there were 1,609 Creditors’ Voluntary Liquidations (CVLs), 60 per cent higher than in July 2021 and also 60 per cent higher than July 2019.

PKF GM thinks this may partly be because creditors can now take enforcement action, forcing directors to take pre-emptive action. There is also anecdotal evidence that many of these liquidations involve small companies which had taken out Bounce Back Loans and are now unable to repay them.

Oliver warned: “It’s critical businesses act early and seek advice if they are struggling now or think cash flow may be squeezed in the coming months. The earlier they act, the more options they’ll have to secure the business’s long-term survival.”