Insolvencies reach 13 year high as directors delay seeking advice

As insolvencies in the UK hit their highest level since 2009, Colin Haig, immediate past president of R3, says there are too many directors seeking help too late.

The latest figures by the UK Insolvency Service reveal there were 22,109 underlying corporate insolvencies in 2022, an increase of 57% from 2021’s statistics.

The numbers show UK businesses are failing at the quickest rate since the financial crisis in 2009.

Haig, who is also the head of restructuring at Azets, says: “directors need to be alert to the signs of business distress and seek help as soon as they show themselves.

“If a firm has cashflow issues, problems paying staff, rent, taxes or suppliers or is seeing stock start to pile up, that’s the time to speak to an appropriately qualified advisor.”

Christina Fitzgerald, president of R3, echoes this view and says seeking advice can give directors “more options, more time to make a decision and a better outcome than if they’d waited till the situation became more severe.”

Haig notes that the earlier a director looks for advice, the more options will be available to the business.

“If a firm has cashflow issues, problems paying staff, rent, taxes or suppliers or is seeing stock start to pile up, that’s the time to speak to an appropriately qualified advisor,” Haig stresses.

One in 202 active companies, at a rate of 49.5 per 10,000 active companies, entered insolvent liquidation in 2022. Fitzgerald describes this as the year the “insolvency dam burst.”

“After nearly three years of trading through a pandemic, and in the face of the end of Government support, rising costs, and a cost-of-living crisis, many directors simply ran out of road this year and chose to close their businesses before the choice was taken away from them” she adds.

To add to the bleak outlook for UK businesses, the last 12 months have seen Creditors Voluntary Liquidations reaching their highest level in 62 years.

Insolvencies will continue to rise in the UK, according to Fitzgerald, because inflation is high, supply chains are still squeezed, and people are still worried about the cost of living.

Previously, Accountancy Age reported that market participants believe the increase in insolvencies is due to economic factors as well as widespread complacency from company directors.

UK’s shrinking economy  

To aggravate Britain’s worries, the International Monetary Fund (IMF) has said the UK will be the only G7 economy to shrink in 2023.

The IMF predicts the economy will diminish by 0.6% after previously saying the UK economy would expand in 2023. This change in forecast by the IMF is due to stricter fiscal and monetary policies, financial conditions, and high energy prices affecting household budgets.

“People are anxious about the economy, their personal finances and rising prices, and are reluctant to make major purchases as the money they do have available goes to pay for necessities,” Fitzgerald says.

The Chancellor, Jeremy Hunt, defended the UK’s economic position: “Short-term challenges should not obscure our long-term prospects. The UK outperformed many forecasts last year, and if we stick to our plan to halve inflation, the UK is still predicted to grow faster than Germany and Japan over the coming years.”