One of the few positive statistics from the first year of the Covid pandemic was a sharp drop in business insolvencies. This was driven by the various measures the government put in place to support businesses, in particular the furlough system. However, these measures have ended now, and the latest figures show that business insolvencies are climbing.
What Do the Figures Show?
The Insolvency Service has published the figures contrasting January 2021 and January 2022, showing that the number of business insolvencies more than doubled in that period. In contrast to the 758 in January 2021, 1,560 companies became insolvent in the same period this year. This is also a slight increase on the pre-pandemic figure of 1,508 for January 2020
Out of the 1,560 insolvencies, most were CVLs (Creditors’ Voluntary Liquidations), a rise of 122% on the previous year. Compulsory Liquidations were also up by a similar percentage, although this amounted to 118 cases in total.
What Do the Figures Mean?
While there seems little doubt that this represents businesses having to face reality, now the government supports have been taken away, other factors have been at work, from the effects of Brexit to the surge in energy prices. Christina Fitzgerald, Vice President of insolvency and restructuring trade body R3, points out that, “Over the last two months, businesses have had to trade through a perfect storm of issues which will have affected them and their income.”
Colin Haig, Head of Restructuring & Insolvency at Azets, feels that “the prevalence of liquidations rather than administrations is a worry. Liquidation usually means that there is no way forward for the business and employees and compulsory liquidation is a symptom of businesses chasing debt playing catch up with their credit control, knowing full well that everyone is likely to lose in a liquidation with no one getting paid.”
Is There a Solution?
If your business is in trouble, it’s not a given that it’s going to end in insolvency. For example, there are investors out there who are actively looking for businesses that are struggling financially but have an otherwise sound structure. It might involve some degree of compromise to bring an outside investor in, but it’s far better than losing the business.
However, the best way to avoid becoming part of the statistics is to make sure all your business’s systems are in good order — most crucially, your credit control. After all, if you’re not getting paid for the work you’ve done or the goods you’ve sold, it’s going to be harder to survive.
Give me a call to talk over how to make sure you’re getting paid what’s due to you.