So, what are the main causes of the rise of company insolvency in 2023 and what does this mean for businesses across the UK?
The Causes of The Rise of Company Insolvency
Throughout 2022, there was a sharp and steady increase in the number of business insolvencies. Towards the end of last year, the number of insolvencies were up 30% compared to the last quarter of the previous year.
This recent increase is widely regarded as the result of several widespread issues that companies have been facing in recent years. The United Kingdom officially left the European Union on the 31st January, 2020, leaving very little time for businesses to adjust to the new challenges this posed before the first restrictive measures around the COVID-19 pandemic were introduced in March.
This rapid change in the way businesses functioned meant that many businesses faced reduced resources, fewer customers and trading partners, and the inevitable economic challenges posed by a national lockdown. For many businesses, the long-term plans for growth and expansion that had been proposed for the new decade had to be scrapped in favour of plans that simply kept the businesses viable.
Businesses which found themselves in these unfortunate circumstances were offered a brief period of respite by the temporary insolvency measures put in place by the government to protect British businesses. During this period, company insolvency and compulsory liquidation rates were recorded at historic lows, before the numbers rapidly increased again throughout 2021 and 2022 as the government aid measures were steadily removed.
As the timeline of these unprecedented circumstances enters 2022, the increased rates of inflation as a result of government spending on support during the pandemic, the pressures on businesses to bounce back, and the fallout from the Russian invasion of Ukraine, further exacerbated the already dire economic situation facing British businesses. It is inevitable that the impact of these events will continue to be felt throughout 2023.
Increased Company Insolvency in 2023
As 2023 gets underway, the rising interest rates and the cost of living crisis continues to put pressure on businesses and households across the country. This pressure, placed upon businesses who are still struggling to recover from the COVID-19 pandemic, has resulted in 2022 seeing the highest number of company insolvencies since 2009. According to recent statistics from The Insolvency Service, one in 202 active companies entered insolvent liquidation in 2022. The total number of company insolvencies registered in 2022 was 22,109, at a rate of 57% higher than 2021. There is also an increase in the number of compulsory liquidations, with December 2022 seeing three times the number of compulsory liquidations of December 2021.
UK company insolvency rates are predicted to continue to climb for the foreseeable future due to the continuation of pressures from Brexit, Covid, increased inflation, and an ongoing economic crisis. In addition to this, the more recent issues of strikes and the cost of living crisis have already seen 2023 facing even more pressures than before.
Assessing and Reducing Insolvency Risk
There is no denying that the economic situation facing British businesses is dire and the risk of insolvency remains very real for many. What steps can businesses take to reduce the risk of company insolvency?
Assessing for Insolvency
There are two main areas to keep in mind when avoiding insolvency. The first of these is cash flow, as a company will be considered insolvent if it cannot pay their debts or outgoings. The second, closely linked, area is the balance sheet, as the value of a company’s assets should always be higher than their liabilities to avoid insolvency.
Reducing the risks
When it comes to reducing the risk of insolvency, particularly if there are concerns about the cash flow or balance sheet, then it is highly advisable to seek professional advice. An insolvency practitioner will be able to advise the business on the best way forwards, which can include a company voluntary agreement, creditors voluntary liquidation and potentially administration in order to avoid compulsory liquidation or even dissolution.
Insolvency in 2023
If you are experiencing financial difficulties, or are concerned about cash flow or the balance sheet of your business, it is best to contact an insolvency practitioner before processes such as liquidation can be initiated. Acting quickly and getting ahead of these proceedings, particularly during the unfortunate and unprecedented circumstances many businesses currently find themselves in, gives your business the best chance of remaining viable.
It is also important to note that if a business becomes insolvent, this does not immediately mean that it cannot be rescued. Your business may benefit from a number of different turnaround options and we at BEACON will work with you to ensure the best outcome for all involved. Contact us today on 02380 651441 for a free consultation to choose the right insolvency options for you.