By Chris Dorrell
Insolvencies increased again in June as businesses continued to struggle under the weight of rising costs and falling customer demand.
According to new figures from the Insolvency Service, there were 2,163 insolvencies in June. Although this was down on last month’s record figure of just over 2,500, it was still 27 per cent higher than last year and above pre-pandemic levels.
The bulk of insolvencies were creditors’ voluntary liquidations, which climbed 21 per cent year on year to 1,759.
There was also a 77 per cent surge in compulsory liquidations year on year, bringing the monthly total to 260.
Jeremy Whiteson, insolvency and restructuring partner at UK law firm Fladgate, said this increase was a “worrying trend”.
“It causes concern if a more aggressive approach from HMRC in collecting debts is killing off otherwise viable, albeit distressed, businesses,” he said.
Commenting on the figures as a whole, Colin Hardman, restructuring & recovery partner at Evelyn Partners said: “Although the number of insolvencies has dropped slightly in comparison to last month, the picture for many businesses is still bleak.”
“Many businesses are continuing to have a really tough time at the moment as they face rising costs and consumers scaling back on their spending, in particular their discretionary spend. The resulting higher interest rates is also adversely affecting profits and access to new funds,” he continued.
The rise in insolvencies reflects the unwinding of decades of low interest rates. In an attempt to contain stubbornly high inflation, the Bank of England has hiked rates 13 times in a row bringing the base rate to its highest level since the financial crisis. This has piled pressure onto firms as it forces the cost of borrowing higher.
Inga West, counsel at law firm Ashurst, said: “Businesses that levered up on low interest rates will need to adjust their business models to cope with a sustained period of higher interest rates, which is forecast to last at least into 2024.”
“If they can’t do that, they face some difficult choices and it seems likely that restructuring and insolvency activity will remain high for the foreseeable,” West said.
