Insolvency Practitioners are preparing for a significant rise in corporate insolvencies in 2022, as companies encounter a number of challenges on the back of the Covid-19 pandemic, including; the ending of Government support measures, higher inflation, staff shortages, increasing energy prices and supply chain challenges.

The number of recent insolvencies has started to develop a trend. According to Government data, in November 2021, corporate insolvencies in England and Wales reached their highest level since January 2019 – the first time since the start of the Covid-19 pandemic that the monthly number of registered company insolvencies was higher than pre-pandemic levels.

According to Monthly insolvency statistics for December 2021, released by the Insolvency Service, December 2021 saw the number of company insolvencies across the UK rise for the second month in a row. An amount of 1,486 corporate insolvencies were reported in December 2021, a c.20% increase from December 2020 (1,237) and 33% from December 2019.

In particular, the most notable increase in December 2021, was in Creditors’ Voluntary Liquidations (CVLs). 1,365 CVLs were reported in December 2021, an increase of 37% and 73% in comparison to December 2020 and December 2019, respectively.

Other types of company insolvencies, such as Compulsory Liquidations, remained lower than before the pandemic.

Government withdrawal of support measures likely to contribute to spike in insolvencies

December 2021 was a particularly difficult end to the year for many businesses. Increasing numbers of Covid-19 cases due to the Omicron variant, and the Government’s implementation of ‘Plan B’ (in turn imposing further restrictions), led to a sharp drop in  retail sales in the normally lucrative pre-Christmas period.

At the same time, pressure on cash is growing for many businesses as remaining Government support measures come to an end.

Insolvencies remained suppressed throughout much of 2020 and 2021 due to the Government’s temporary support measures, that helped businesses continue to trade during the pandemic, such as Bounce Back Loan Scheme (BBLS) and Coronavirus Business Interruption Scheme (CBILS) loans, as well as deferred HMRC liabilities.

Whilst a number of insolvencies are likely to have been prevented by Government support measures and temporary changes to insolvency legislation (including the restrictions on winding-up petitions), other insolvencies are likely to emerge as support measures unwind, and pressure on cash flow facilities will be increased by the demand for repayment of the Government-backed loans.

Supply-chain and inflation pressures take hold for certain sectors

Recent spikes in wholesale gas, coal and electricity has seen a significant increase in insolvencies. Alarmingly, 27 energy suppliers have collapsed since January 2021, with the majority of these being in the second half of the year.

Other energy-intensive industries such as industrial manufacturing and construction are also likely to feel the impact of rising fuel costs. Businesses in these sectors will need to consider the impact of cost inflation, and build mitigating strategies.

The recent surge in energy prices has also instigated upheaval in the domestic energy supply market, with 13 retail suppliers entering into a ‘Supplier Of Last Resort’ (SOLR) process, whereby larger gas and electricity suppliers take on a failed suppliers’ customers.

As energy prices continue to rise, it is expected that further insolvencies in the energy-intensive sectors will emerge in the coming months.

The importance of taking action early

If your business is currently facing financial pressures, or you think cash flow may become difficult in the coming months, it is essential to take action as soon as any potential issues are identified.

There are options available that can be tailored to alleviate or mitigate situations and restructure existing debt, but the sooner you act, the more options you’ll have available to help you get your business back on track.

If your company is experiencing short term cash flow issues but has a viable long term strategy for recovering and can demonstrate sufficient cash flow, emergency finance may be an option in the form of a cash loan or asset-based financing.

Companies unable to access finance may need to consider other formal solutions such as Time-to-pay arrangements (TTP) with HMRC, Company Voluntary Arrangements (CVA), Administration, or Creditors Voluntary Liquidations (CVL).

It is important to remember that during periods of financial duress, the options available to each business vary and depend entirely on the business’s circumstances.

Seeking help from the right experts, at the right time

Prevention is always better than cure when it comes to financial difficulty.

At PKF Smith Cooper, we know that early intervention is paramount and the most effective way to mitigate the long-term impact of periods of financial difficulty. The sooner you seek professional advice in whichever capacity you need, the more likely a strategic recovery plan can be executed.

If you’d like to discuss your current situation in greater depth or have any concerns regarding the health of your business or personal finances, please do not hesitate to get in touch.