Corporate insolvencies increase by 10%
As we near the end of 2023, official figures from the Insolvency Service paint a bleak picture in relation to company insolvencies, which have risen by 10% from 2022. The Insolvency Service reported 6,208 registered company insolvencies between July and September compared to 5,635 in the same period in 2022.
During the COVID-19 pandemic, businesses were given respite from financial difficulties in the form of various government measures including bounce-back loans, the furlough scheme and a moratorium on insolvency action.
The moratorium on insolvency action provided businesses with much needed breathing space to allow themselves the opportunity to continue to trade (without action being taken by the business’ creditors), in the hope that the business would come through the other side of the pandemic.
As of 1 April 2022, all temporary insolvency measures implemented to provide relief to businesses had ended and creditors were free to take such action as they wished against businesses who had failed to settle their debts.
The Insolvency Services’ official figures show that creditors have not been deterred from taking insolvency action against debtor businesses, despite the Official Receiver’s Deposit fee being increased by £1,000. Creditors appear to be more determined than ever to recover sums that they are owed.
Despite the government measures during the COVID-19 pandemic providing temporary relief to businesses, it is apparent that the cost of living crisis, combined with higher inflation and borrowing costs has led to businesses struggling more than ever.
According to data prepared by analysts Red Flag for Begbies Traynor (a business recovery specialist), there are approximately 38,000 companies in “critical financial distress” which they define as having county court judgments exceeding £5,000, which is an increase of 25% over the last three months.
This paints a very bleak picture for companies who, having survived the pandemic, continue to face difficulties as a result of the cost of living crisis and inflation. Businesses who owe money are struggling to survive but conversely, there are businesses who are owed money who, if not paid, will face similar difficulties. It is a vicious circle which shows no signs of abating as 2023 looks to be on course to be the worst year yet for business insolvencies since 2009.
Articles are intended as an introduction to the topic and do not constitute legal advice.