Monthly company insolvencies up 33% on December 2019 levels

Following the publication today of the latest monthly insolvency statistics by The Insolvency Service, Pranav Nadkarni, Director in the Advisory Consulting team at Tilney Smith & Williamson, the wealth management and professional services group, comments:

The monthly insolvency statistics published by The Insolvency Service for the month of December 2021 show that number of registered company insolvencies in England and Wales was 20% higher than the number registered in the same month in the previous year and 33% higher than number registered two years previously. These rises were particularly influenced by the higher number of creditors’ voluntary liquidations (CVLs), which were 33% and 73% higher than in December 2020 and December 2019 respectively, which is a trend that we have seen over most of 2021 as directors have voluntarily closed businesses that are not fit to survive the current climate. The Insolvency Service noted that other types of company liquidations remained lower than before the pandemic.

The Omicron wave in December has had a significant impact on businesses, especially high-street hospitality businesses, which saw a 40-60% drop in their December trade due to cancellations and reduced footfall. The situation was aggravated by many firms reporting multiple employees testing Covid positive and needing to self-isolate, along with delays in receiving the promised government grants, which could be quite catastrophic for those businesses that had already been hampered by a weak trading season. This situation is still evolving, and we expect some stabilisation given the high level of immunity in the general population, either through booster jabs or previous infections, leading consumers back to pubs and restaurants over the coming months.

Apart from Covid, we see continuing pressures on businesses from cost inflation (raw materials, fuel costs and wages), supply chain disruptions (especially driven by China’s ‘zero-covid’ policies) and a tight labour market, partially impacted by Brexit as well. These macro-trends are impacting and stretching businesses across the economy, however these particularly impact small and medium sized businesses, who do not have the balance sheet to weather these multiple risks at the same time. These SME suppliers that are further down the value chain may struggle in passing these cost increases to their customers, which could result in an invisible wave of insolvencies that could be quite disruptive to the overall economy.

In terms of sectors, apart from the retail, hospitality and energy businesses that have notably been impacted, we also see a lot of businesses in the construction sector being severely impacted by the rising fuel and material costs along with a lack of skilled workers.

With several covid relief schemes ending in March 2022, businesses should continue to assess their cash flow positions and develop forecasts and scenario analyses to assess potential impact of these macro-trends on liquidity and solvency. As always, taking steps proactively will help businesses mitigate the turbulent winds this year.