5-year high in company insolvencies

Rising interest rates have directly impacted businesses’ ability to service their debts, as starkly revealed by the most recent data from the Insolvency Service (dated March 2022).

The figures show that 2,114 businesses entered insolvency during the month of March, a 39% jump up from 1,517 in February. This means that the first quarter of this year has seen the highest number of company insolvencies – 5,197 – in any quarter since Q3 2017.

Interest rate rises and inflationary pressures

Rises in interest rates have made businesses’ debts more expensive to service and are likely to have pushed some heavily indebted businesses into the red. Businesses have also had to deal with spiralling inflation, with energy costs rising by an average of 250%** in the first quarter of this year compared to the same quarter in 2021. These costs, combined with HMRC’s move to recover outstanding arrears from companies that failed to agree a Time to Pay arrangement (TTP), mean that companies are being left with few options.

Rebecca Dacre, a partner in our Restructuring and Advisory service, reports that those businesses that were just hanging on before the recent interest rate rises have seen the rise in borrowing costs push them over the edge. Combined with inflation, this is the most difficult period for businesses since the height of the pandemic.

Businesses ‘going it alone’

In contrast to the acutely difficult period for businesses as a result of the pandemic, this time companies are having to manage without Government support.

In addition, the moratorium on winding up petitions ended on March 31. The moratorium prevented creditors from petitioning to wind a company up because of unpaid debts during the pandemic period. The end of this additional protection for struggling businesses is likely to lead to even more insolvencies in the coming months.

Rebecca Dacre continued, “With no more Government protection from their creditors, even more businesses can be expected to fail. Insolvency practitioners are now busier than they have been in a very long time. There has long been talk of a ‘wave of insolvencies’ that would happen once the insolvency moratorium was lifted. We’re now starting to see it.”

*Insolvency Service statistics for March 2022

**Source: Cornwall Insight.

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