Insolvency rates in England and Wales reach a record high
England and Wales recorded the second highest number of company insolvencies last month since 2009, according to government figures. This reflects the high interest rates and increased costs caused by high inflation in 2022 and 2023, as reported by Reuters and picked up by News.ro.
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In June, there were 2,361 recorded company insolvencies on a seasonally adjusted basis, a 17% increase compared to the previous year and the highest number since May 2023.
The high total partially reflects the growth in the total number of companies. The percentage of companies declaring insolvency has also seen a slight increase.
The Impact of COVID-19 Pandemic on Insolvency Rates
Insolvency rates have seen a significant decrease in the beginning of 2024, compared to the years following the global financial crisis of 2008-2009. This decline can be attributed to the £79 billion (102 billion USD) loans provided to businesses during the COVID-19 pandemic and the suspension of insolvency cases in court, which ended in April 2022.
“Insolvency levels are on the rise again as historical cost pressures persist, and companies face challenging conditions, marked by consistently high interest rates,” said David Hudson, a restructuring partner at FRP Advisory.
The Bank of England has kept interest rates at a 16-year high of 5.25% for over a year, and financial markets anticipate a gradual return to normalcy in the coming months as the economy recovers.
Challenges in Debt Management for Businesses in the Coming Year
As we look ahead to the next year, businesses are facing a slow decrease in the costs of debt, despite underlying inflationary pressures remaining strong. Accountants have noted that sectors such as construction, hospitality, and retail have been among the most heavily impacted. Additionally, higher insolvency rates have been linked to a tougher stance on outstanding debts by tax authorities, local administrations, and suppliers.
June is also a month when quarterly rent payments are typically due. While debt markets remain active, creditors are becoming increasingly selective about the businesses they support, according to Lindsay Hallam, Senior Managing Director of Corporate Finance and Restructuring at FTI Consulting.
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Insolvency Rates in Scotland and Northern Ireland
In Scotland, insolvency rates have decreased by 4% annually, while in Northern Ireland, they have increased by 13% in June. These two regions have different laws regarding insolvency compared to England and Wales.
