Insolvency News: Worst Year For Business Since 2009

A recent article on insolvency news from the BBC outlined the number of businesses facing financial distress is on the rise, echoing trends last seen during the depths of the 2009 financial crisis. This trend has particularly affected industries such as construction, transport, and manufacturing. This is due to the fact their tight margins have amplified the impact of economic fluctuations.

Rising Insolvencies

Recent UK insolvency statistics have shown a 10% increase in insolvencies in the last three months, with no signs of this trend slowing down. Moreover, there has been a startling 25% surge in the number of firms at risk of going bust. This is defined by county court judgments exceeding £5,000 against them, often serving as a precursor to insolvency.

Terry Bell, Director of Bell & Company, points out, “We are seeing, with the increased power of HMRC to issue winding up petitions, that insolvent companies do not have the stamina that they used to“. These challenges are affecting most industries in the UK. The construction industry has witnessed a sharp 46% increase in companies gone into administration this week.

In Q3 of this year, over 70% of winding-up petitions were issued by HMRC. This highlights the need for business owners to treat them as a priority, even when struggling with cash flow.

The Cost of Living Crisis

The reasons behind this surge are complex, stemming from a combination of factors. High inflation and rising borrowing costs dominate the headlines in insolvency news. However, when coupled with weaker consumer confidence and demand, it has created a challenging environment for businesses.

One of our clients who owned a manufacturing company in Leeds had the following to say on the state of the economy, “Things had started to pick back up after the pandemic, but the cost of living crisis has just squeezed cash flow so tight that we couldn’t continue”. The current economic climate, characterised by escalating costs of goods and services, exerts immense pressure on profit margins. This forces companies to consider borrowing additional funds, which, in turn, can lead to financial stress and instability.

A common trend we are seeing at Bell & Company is directors using invoice financing to patch over their cash flow issues. Although it may seem like a viable short-term solution, they provide an added risk to the director, as we have never seen this finance provided without a personal guarantee.

Support measures during the COVID-19 pandemic, such as furlough, bounce-back loans, and forbearance from HMRC, played a crucial role in maintaining low company failure rates. However, as these supports have dwindled, businesses are now grappling with the impact on their bottom lines and their customers’ wallets.

A Tough Road Ahead

At Bell & Company, we keep a close eye on insolvency events in the UK. Every week, we receive data that helps us stay up-to-date and accurately understand the situation. In the past two months alone, we’ve noticed a 6% increase in companies going into liquidation. A large volume of these companies are entering voluntary liquidation, thinking it’s a smooth process with a ‘friendly liquidator’ being appointed. However, this choice can lead to unexpected consequences, especially if there are Personal Guarantees and Overdrawn Directors’ Loan Accounts involved. In such cases, the liquidator may decide to pursue the director personally.

As UK businesses look to the future, they must navigate a dynamic and uncertain landscape shaped by high inflation and rising interest rates. Our recent article on interest rates dives further into what businesses can do to manage their impact. Managing inflationary pressures and carefully assessing their borrowing needs and financial planning will be vital.

Bell & Company assist businesses facing the challenges of the current economic climate. If you are facing financial distress, then you have your debt expert. We offer a free case review to identify the obstacles you are dealing with and develop tailored strategies to improve your financial performance.

In these unpredictable times, Bell & Company are here to support you.