According to recent official government statistics, there were over 1,800 insolvencies of registered companies in England and Wales in the month of July alone. This indicates something that many insolvency professionals already know: UK insolvencies have been on the rise throughout 2022. Compared with the same month last year, there were 67 percent more insolvencies this year. Indeed, when you look back at the three years before then and compare the current number of insolvencies to pre-pandemic levels, then there is still a significant upturn. What does this indicate about the state of the UK’s economy?
To begin with, insolvencies are a fact of life in business and they can occur for many different reasons. However, few would argue that the energy crisis in the country has caused many firms with already tight cash flow situations to struggle. Even if they have been able to settle their utility bills up until now, uncertainty about this winter’s bills has made financial planning impossible for some. There again, many importers have struggled to adjust to the UK’s departure from the EU’s customs union with all of the additional paperwork that is now required for goods ordered from the trading bloc. Even those that do cope have had to face a weakening UK currency. Equally, many business owners have cited the current level of inflation has caused them to reconsider whether it is worth continuing to trade. Firms making a modest loss even a few months ago have started to suffer more as inflation has reached double digits this year.
Consequently, there have been upturns in insolvencies across the board. Few sectors have been untouched by the phenomenon. Indeed, there were 1,609 creditors’ voluntary liquidations, or CVLs, this July, up almost two-thirds of the corresponding figure for 2021. In the same 12-month period, compulsory liquidations rose threefold. Remarkably, official administrations doubled from July last year, too.
Looking at the second quarter of 2022 as a whole – something that perhaps offers a more rounded view than comparing one particular month year on year – the rise in insolvencies in England and Wales was even more marked. Released in August, the official insolvency data for April to June this year showed an 81 percent rise in insolvencies compared to the same period last year. This is noteworthy on its own merits but, as professional insolvency practitioners Salient Insolvency point out, the number of companies going out of business in this quarter was the highest it had been since 2009. To put that in context, that’s more than sought insolvency proceedings during the pandemic and when the UK was in the teeth of the after-effects of the global financial crisis.
At the time of writing, no one is sure whether the figures for the third quarter of 2022 will be any better. Certainly, many insolvency professionals have seen no downturn in requests for their services. It is worth noting that there was a 13 percent increase in insolvencies in the second quarter of this year compared with the first quarter. A similar increase in the third quarter could make for distressing reading, especially if the country faces additional problems, such as energy rationing, for example.
