Home Business News Company insolvencies jump to a 14-year high which is ‘highly concerning’

Company insolvencies jump to a 14-year high which is ‘highly concerning’

by LLB Finance Reporter
28th Jul 23 12:17 pm

According to government figures insolvencies in England and Wales has reached a 14-year high and in the three months to June 2023 Insolvency Service data shows there was 6,342.

Companies are under heavy pressure due to a sharp rise in borrowing costs amid the Bank od England hiking interest rates, increased labour costs and soaring energy bills.

So far this year more than 12,000 companies have entered into insolvency.

David Kelly, head of insolvency at PwC, said the full effect of interest rises on firms could still be yet to come.

“High inflation and the increasing cost base for firms is resulting in the erosion of both liquidity and shareholder value, thus reducing confidence in the ability to hit future forecasts,” he said.

“Coupled with rising interest rates, it is making for a very challenging environment for business.

“Like homeowners coming off fixed mortgage rates, many businesses have yet to refinance their debt, meaning the full impact of higher interest rates may yet to be felt.”

John Cullen, business recovery partner at accountancy firm, Menzies LLP, told LondonLovesBusiness.com, “It is highly concerning to see that the number of corporate insolvencies in Q2 was the highest in 14 years – 9% higher than last quarter, and 13% than the same period last year.

“Whilst interest rates and inflation are a seemingly obvious cause, the need to repay pandemic-related bounce back loans, recent moves by HMRC to issue winding up petitions on outstanding debts quicker and the price of goods and materials generally, have also had an impact.

“And it’s not just about financial pressures – businesses are grappling with many other changes simultaneously. It takes longer to source goods; longer to find staff; longer to recover debtors. There is only so much pressure businesses can take.

“Businesses will be hoping that they don’t have to wait too much longer for interest rates to start to fall, particularly as the latest inflation data was more upbeat than expected. This will help by reducing the cost of borrowing. However, the underlying trend is going to require businesses to adjust to a more challenging environment and there will inevitably be a cost attached.

“Businesses feeling the strain should take advice. They should talk to their stakeholders or even their competitors. Businesses should maintain a dialogue and be prepared to share their experiences as we are all in this together. Above all, it’s important to look after your cash and make sure everything is well costed. It seems likely that there’s a rocky 12 months ahead.”

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