Business insolvencies hit a 60-year high

Business insolvencies in England and Wales rose to a 60-year high in the first quarter of the year, according to the Insolvency Service.

The number of businesses becoming voluntarily insolvent in the first quarter of 2022 rose to 4,900, more than double the number in the same period last year.

Insolvency occurs when a business cannot pay its debts, so taking immediate action minimises the risk of insolvency and the consequences for those involved.

Phasing out of support drives closures

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

The Financial Times reported that this increase coincided with the phasing of measures which supported businesses during the coronavirus pandemic, like the furlough scheme and the suspension of wrongful trading liability.

This 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.

‘Tough climate’ in which to operate

Christina Fitzgerald, president of insolvency and restructuring trade body R3, said the data reflected the “tough climate” in which businesses are operating.

She said: “At a point where many businesses needed a return to normality, rising fuel and energy costs have put them under additional strain, while the cost of living crisis had prevented the spending boom many were hoping”.

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

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.

Fears of a wave of closures

There are fears that rising inflation and the withdrawal of support measures, will cause a wave of business closures.

In the first quarter, about 137,000 British businesses closed, 23 per cent more than in the same period a year earlier, according to data from the Office for National Statistics. The figures showed a regional disparity.

In the North East and the West Midlands business shutdowns rose 49 per cent, more than double the 19 per cent increase in London. The level of closures was the highest since comparable records began in 2017, and marked the fourth consecutive quarter in which more businesses were closed than created.

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Posted in Business.