Insolvencies up amid increased pressures

The Insolvency Service has reported that corporate insolvencies are up by more than two-thirds on this time last year as economic pressures continue to rise. Up 67% on the same time last year, the July figures also show that the overall rate of insolvencies is up 27% compared to 2019.

Inflation on top of Covid

It is clear that the recent increases are as a direct result of inflationary pressures which at any other time would be hard enough for companies to manage. But coming straight off the back of the Covid pandemic, many companies don’t have the wiggle room or reserves to ride out, what appears to be, an extended downturn and continually rising cost base.

With economists predicting a recession, inflation peaking at over 10% by the end of the year, costs up and a continuing shortage of staff, companies are being buffeted from all sides with no clear route out of the quagmire in which they find themselves. The increase in insolvencies appears to be underpinned by Creditors’ Voluntary Liquidations (CVLs) which are up 60% year on year and 60% up on pre pandemic levels.

No one sector hit hardest

Whilst some industries have slightly higher percentages of businesses closing their doors, the data does not suggest that any single sector has been hit hardest. Instead, commentators and analysts are suggesting that the tough 3 years just past combined with the immediate future are making company owners and Directors take the decision sooner than they may otherwise have done, as the outlook is incompatible with survival.

Amongst those shutting up shop are restaurants, who have struggled with staffing and increased costs and who are staring down a reduction in disposable incomes for 6-18 months. Also, in the data are building companies who have suffered from huge price increases and shortages of raw materials. Those delivering fixed price contracts which were agreed before the pandemic or before costs began to rise seemingly being impacted the most.