Rising numbers of businesses going into insolvency are likely to continue throughout the year, experts in the North East say.
Chris Ferguson, North East chair of insolvency and restructuring trade body R3, was speaking after data for the second quarter of 2023 revealed an increase of 8.9% on the number of corporate insolvencies and the highest levels of corporate insolvency since the financial crisis 2008-9. Many businesses were protected from failure during Covid but are now facing the combined challenges of a continuing cost-of-living crisis, rising prices and increasing interest rates.
Latest figures from the Insolvency Service statistics show that there 6,342 corporate insolvency cases lodged across England and Wales between April and June this year, compared to 5,824 in the preceding three months. The new Q2 figure is 13.1% per cent higher than the same quarter in 2022, and more than double the 3,082 cases registered in in the second quarter of 2021.
Read more : insolvencies still 'worryingly high' in the North East
Mr Ferguson, who is also director of recovery and insolvency at Gosforth-based RMT Accountants & Business Advisors, said: “More and more businesses are running out of road. Directors are choosing to close businesses whilst the decision is in their hands, while an increasing number of creditors, including HMRC, are turning to winding-up petitions to recover debts they’re owed.
“When the pandemic ended, directors were optimistic that trading conditions would improve, but rising costs, supply chain issues and a consumer base that is tightening its purse strings means conditions continue to be incredibly difficult for most businesses.
“Whilst the current economic climate remains, it’s likely more businesses will need to look to a formal insolvency process to deal with their financial issues, and we expect these figures will remain high throughout the rest of this year.”
The warning from R3 has been echoed by a new report from the Cebr economic think tank, which said that insolvencies have reached a peak not see since the 2009 financial crisis.
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The organisation said that many firms had taken on debt during the pandemic but will now be struggling to pay that back due to higher interest rates and low consumer demand.
Cebr said: “This rise in insolvencies may be indicative of a wider downturn in the economy. If large investments in projects are being delayed, likely due to high borrowing costs, and businesses are collapsing, there will be impacts felt throughout the economy, from suppliers of materials to workers losing their jobs.
“Looking ahead to the future, Cebr expects the rate of business insolvencies to remain high as interest rates continue to rise, pushing up debt repayments to unsustainable levels for some businesses. Our models suggest that there could be 7,000 insolvencies per quarter on average across 2024.”