Why corporate insolvencies are set to rise throughout 2023 - Greg Wright

It’s a question that will give many economists sleepless nights. Has the insolvency dam finally burst? Corporate insolvency numbers hit a 13-year high last year after Government support packages which eased the pain caused by the pandemic were gradually taken away.
By The Newsroom
Published 15th Feb 2023, 13:22 BST

According to Eleanor Temple, chair of the insolvency and restructuring trade body R3 in Yorkshire and a barrister at Kings Chambers in Leeds, many directors simply ran out of road last year and decided to close their businesses before the choice was taken away from them. Total company insolvencies registered in 2022 leapt by 57 per cent to 22,109 from the previous year, according to data from the Insolvency Service.

Ms Temple added: “With the entire supply chain under pressure from increased costs, the flexibility we saw from creditors during and in the aftermath of the pandemic to those who owed them money has disappeared, and many are now taking action to recover the debts they are owed in an attempt to balance their own books. Inflation is still high, supply chains are still squeezed, and people are still worried about the cost of living, so it’s likely we’ll see insolvencies continue to rise this year unless the trading climate takes a drastic turn for the better.”

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As we head towards spring, it’s hard to find reasons to be cheerful, despite the announcement that UK inflation had eased back for the third straight month in January.

Britain should be prepared for an increase in corporate insolvencies, says deputy business editor Greg WrightBritain should be prepared for an increase in corporate insolvencies, says deputy business editor Greg Wright
Britain should be prepared for an increase in corporate insolvencies, says deputy business editor Greg Wright

Total company insolvencies in England and Wales hit 1,671 during January, according to the Insolvency Service said. This represented a 7 per cent rise against January 2022 and was 11 per cent above pre-pandemic levels from 2020.

Ed Macnamara, head of restructuring at PwC, said: “While the number of company insolvencies in January is down on the month before, any respite is likely to be short-lived. The data serves as a reminder that we are still in the midst of a difficult trading environment with rising interest rates and high inflation which, when combined, generally results in more company failures.

“We’re also seeing an uptick in both late payments and the number of requests to extend credit terms. This domino effect is likely to increase the squeeze on businesses already struggling with their debts and might mean that some are forced into insolvency.”

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It’s hardly surprising that corporate restructuring firm FRP Advisory has reported a rise in inquiries as businesses come under pressure from soaring inflation and borrowing costs. The sectors that experienced the highest number of insolvencies in 2022 included construction, retail and food service businesses which were hit hard by the cost of living crisis.

Oliver Collinge from PKF GM in Leeds predicted that some of the better-performing businesses will face challenges in 2023.

He added: “ The IMF predicts that the UK will be the worst performing of the big economies in 2023 and a combination of working capital and supply chain challenges together with the cost of living crisis and rising interest rates means that the pressure on cash will continue.”

Over the next year, we must be braced for an incessant flow of bleak corporate news as the UK’s economy is battered by fierce economic headwinds.

Greg Wright is the deputy business editor of The Yorkshire Post

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Related topics:Greg WrightYorkshireLeedsGovernmentInflation