Bankruptcies are rising by nearly a third as UK businesses grapple with rising borrowing costs and consumer pressure
- In June, 2,163 companies were declared bankrupt, compared to 1,698
- There were also 260 forced liquidations in the year to June, a 77% increase
Business insolvencies in England and Wales rose 27 per cent in the year to June on rising borrowing rates and wider economic weakness.
Some 2,163 companies were declared insolvent in June, up from 1,698 at the same time last year, according to new Insolvency Service data released by the government on Tuesday.
Corporate bankruptcies have soared since the lifting of pandemic support measures and are now above pre-Covid levels.
Some 2,163 companies were declared insolvent in June, up from 1,698 according to Insolvency Service data
There were also 260 forced liquidations in the year to June, a 77 percent increase over the previous year.
The report explained that ‘forced liquidations have risen from historic lows during the coronavirus pandemic’, due in part to ‘an increase in liquidation requests submitted by HMRC’.
Mandatory liquidations are when a formal court order is filed, normally by a creditor, stating that the company owes an amount of money that it cannot pay.
Most insolvencies were voluntary liquidations (CVLs) of creditors, where a company’s directors, after exhausting all recovery options, decided to liquidate the company without a formal court order.
Nick O’Reilly, director of restructuring and recovery at MHA, called for a review of corporate rates and reform of Covid-19 repayment terms to contain increased insolvencies.
He said: “The fall in customer demand, an economic downturn and a 5 percent increase in interest rates, on top of high inflation and the cost of living crisis, have left businesses and small to medium businesses short of time to a healthy cash reserve or post-pandemic impact recovery.”
O’Reilly added that many businesses are “contemplating closing or have closed their doors for good, and the crucial government initiatives are rapidly being introduced to help stem the flow.”
Business insolvencies increased by 27 percent, mainly due to the higher number of CVLs
He said: “Reforms are urgently needed within the corporate pricing regime to encourage companies to invest, grow and innovate.
“The Non-Domestic Rating Bill introduces new corporate rates for real estate and building improvements and brings much-needed relief and tax breaks to the construction industry, but industries such as leisure and hospitality continue to be left in the lurch.
By restructuring the repayment terms of the Covid-19 aid, companies have more time to repay and can restructure their obligations internally.
“Additional government support for companies with outstanding Covid-19 loans will further help them allocate resources efficiently and survive during this economic downturn.”
David Hudson, restructuring consulting partner at FRP, added: “The question now is not whether insolvencies will rise in the coming months, but how high they will rise.
“Future bankruptcies will not be limited to the smallest companies. As the impact of collapses spreads through supply chains and as the cost of capital rises, more and more larger companies, which may be more indebted, will find themselves under financial pressure.
‘In the field we are already seeing early indications of this contamination via the business community.’