What factors have been driving the leap in company insolvencies?

The main factor driving this rise is a leap in company voluntary liquidations – where a company’s directors elect to wind up its affairs. But there were three times as many compulsory liquidations in April this year than in April 2021, while administrations were 51% higher.

These statistics are not too surprising – a jump in corporate insolvencies was expected once the government’s coronavirus business support measures ended. But the scale of the rise is striking and points to additional challenges that have emerged. Most notably, the conflict in Ukraine and Brexit are affecting supply chains.

Additionally, UK inflation hit a 40-year high of 9% in April while interest rates and energy costs are going in the wrong direction. VAT has also returned to 20% for hospitality and accommodation businesses.

Add to this mix low consumer confidence, worker shortages and rising salaries and it’s no wonder some are forecasting a recession in the second half of this year, and ever worsening insolvency numbers.

Bank of England governor Andrew Bailey recently said of rising inflation: “There’s not a lot we can do about 80% of it.”

However, businesses will do well to avoid thinking likewise about their prospects. Difficulties might be averted by exploring any additional time to pay, amend and extend, or other compromises with key creditors. It may also be possible to attract new investment from third parties or to raise funds by selling non-core investments.

Those who confront the threat of insolvency head-on by seeking advice and considering all potential solutions are most likely to avoid the worst outcomes. While company voluntary arrangements are no longer so popular, there are other insolvency procedures that may be worth exploring, which offer either more breathing space or a route to salvage the valuable from the less valuable assets.

Matthew Padian is a partner at Stevens & Bolton