Last week saw the release of the Insolvency Statistics for the final quarter of 2021. It provides an insight into the financial health of companies & individuals. The overall consensus suggests that businesses are only truly beginning to feel the effects of the pandemic now, with insolvencies on the rise.

Company Insolvencies up by 54% since 2021

The total number of insolvencies are up by 54% compared to the same period in 2021. Although this may sound shocking there is some good news; the total number of insolvencies are still well below pre-pandemic levels.

What does it mean?

This is the first sign that Covid-19 is beginning to catch up with UK businesses. As more companies struggle with loans that they have taken on, they are either unable to continue trading or are being forced to close by their lenders via forms of insolvency proceedings. Nevertheless, the protections put in place to help struggling businesses have gone a long way to preventing the sharp rise that some predicted. The increase is largely down to the removal of schemes and protections for businesses.

Terry Bell, Chairman of Bell & Company states: “As the figures below demonstrate, the riskier traders are already beginning to suffer and become victims. I think these will be a protracted “downglide” for many businesses hit by Covid-19, as debts have amassed and will overcome many SMEs.”

Voluntary Closures Made up 90% of Insolvencies

Most company insolvencies in 2021 (90%) were a result of business owners voluntarily choosing to close their companies. This is a 68% increase from the last quarter of 2020.

What does it mean?

This suggests that businesses are struggling to repay their debts. Without incoming cash flow, it’s understandable that many business owners don’t see any alternative routes, there always is. Directors are closing down or ‘liquidating’ their company to avoid repaying their liabilities. Unfortunately, small businesses are particularly vulnerable, especially after the winding down of the furlough scheme. Additionally, businesses are contending with:

  • Additional debt taken on during the pandemic
  • Reduced profits due to rising costs and labour shortages e.g. Construction Industry

Terry notes: “There are many uncertain elements to the economy and all businesses face risks, often beyond their control. This, in turn, leaves unincorporated businesses and limited company Directors with Personal Guarantees, with their own issues to face, in the event of closure.”

The Usual Victims

Rising material costs and the wave of Omicron at Christmas signalled the death knell for many businesses in difficulty.  Overall, the worst-hit sectors were:

  • Construction = 19% of Insolvencies
  • Vehicle sales = 12% of Insolvencies
  • Hospitality = 12% of Insolvencies
  • Other sectors impacted include Telecommunications & administrative and support services.
What does this mean?

A combination of factors have pushed some businesses ‘into the red’, forcing them to close. These industries rely heavily on cash flow so, during economic difficulty, they are always the first to suffer.

Are you a business owner?

If you are, these insolvency statistics may be a harsh signal of reality. However, it’s important to note that although we are heading into an easier trading environment that could see your business recover it’s still vital to look out for the below signs to test the viability of your business:

  • Unable to pay suppliers
  • Falling into arrears with creditors
  • Struggling to pay wages
  • Not able to pay day-to-day bills

If this is the case, you find out all of the alternative options available to help you deal with the situation. We have been providing advice to all types of business owners for over a decade and can ensure that our specialist team will find the solution that suits you and your business.

Call 0330 159 5820 to speak to find out your options or simply click below to speak to an advisor on our live chat.

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