A North East debt expert believes that a substantial year-on-year rise in the number of corporate insolvencies in England and Wales is evidence that ‘the insolvency dam burst’ during 2022.
The North East chair of insolvency and restructuring trade body R3, Chris Ferguson, was speaking after the publication of official statistics which showed there were 22,109 corporate insolvencies across the two countries during 2022.
Last year’s figure represents a 57.3% increase on the 14,059 corporate insolvencies in 2021, and an ever steeper 75% rise on the 12,632 cases registered in 2020.
The 2022 figure is also 28.8% higher than the 17,164 corporate insolvencies in 2019, which is the last comparable pre-pandemic year.
The Insolvency Service statistics show that the number of firms put into liquidation through Creditors’ Voluntary Liquidations (CVLs), a procedure initiated by directors of insolvent firms to close their companies, reached its highest level in more than 60 years, while compulsory liquidations were also at their highest level since before the pandemic.
Chris Ferguson, who is head of recovery & insolvency at Gosforth-based RMT Accountants & Business Advisors, says: “After two years of being supressed by Government support schemes, the insolvency dam burst in 2022 and corporate insolvency numbers across England and Wales hit a 13-year high.
“This was mainly down to Creditors’ Voluntary Liquidations reaching their highest level in 62 years, with directors increasingly choosing to close their businesses due to concerns about their ongoing viability.
“After nearly three years of trading through a pandemic, and in the face of a sustained period of challenging economic conditions, rising costs and a cost-of-living crisis, many directors clearly felt they had ran out of road last year and chose to close their businesses.”
The removal of the Government’s remaining temporary pandemic insolvency measures in April last year, which had protected companies in pandemic-related financial distress from creditor action, has also been a major factor in the 2022 increase.
And Chris Ferguson is now advising North East company directors to remain aware of the signs their business is financially distressed and act as soon as they see them.
He continues: “The end of the Government’s temporary legislation on winding-up orders left creditors free to pursue unpaid debts.
“With the entire supply chain under pressure from increased costs, the forbearance we initially saw from creditors in the aftermath of the pandemic has disappeared, and many are now taking action to recover monies they are owed in an effort to safeguard their own cash flow.
“Inflation is still high, supply chains are still squeezed, and people continue to be worried about the cost of living, so it’s likely we’ll see insolvencies continue to rise this year.
“Where directors have concerns about the financial position of their business, seeking early advice is absolutely key. This will help to widen the range of options available to support a turnaround plan as part of a business rescue strategy.”