Business insolvencies jump 81% to the highest rate since 2009

3rd August 2022

Latest quarterly figures from the Insolvency Service for England & Wales showed that there were 5,629 business insolvencies registered in Q2 2022, the figures wew 13% higher than the number of business insolvencies registered in the previous quarter and 81% higher than during the same quarter in the previous year. The total number of registered company insolvencies in Q2 2022 was the highest since Q3 2009.

Creditors’ voluntary liquidations (CVLs) were the most common company insolvency procedure (87% of cases), followed by compulsory liquidations (7% of cases), administrations (6% of cases), company voluntary arrangements (CVAs; 1% of cases); and one receivership appointment, which are now rare.

In Q2 2022, CVLs accounted for 87% of all company insolvencies. The number of CVLs increased by 13% from Q1 2022 and was 74% higher than during the same quarter last year, after seasonal adjustment. The number of CVLs was the highest in the time series, which began in 1960.

The number of compulsory liquidations in Q2 2022 was 9% higher than in the previous quarter and nearly four times as high (261% higher) as in Q2 2021. However, compulsory liquidation numbers remained lower than pre-pandemic levels.

The number of administrations in Q2 2022 was 18% higher than the previous quarter, and 95% higher than the number the same quarter of the 2021, after seasonal adjustment.

The number of CVAs was higher in Q2 2022 than in Q1 2022 and Q2 2021 (both were higher by 28%).

The three industries (in accordance with SIC 2007) that experienced the highest number of insolvencies in the 12 months ending Q2 2022 were:

  • Construction (3,665, 19% of cases with industry captured);
  • Wholesale and retail trade; repair of motor vehicles and motorcycles (2,544, 13% of cases with industry captured);
  • Accommodation and food service activities (2,206, 12% of cases with industry captured)
A bar chart showing number of company insolvencies by industry in England and Wales in the four quarters ending Q2 2022 and the four quarters ending Q2 2021. The data can be found in Table A1a of the accompanying industry tables.

Commenting on the figures Christina Fitzgerald, President of insolvency and restructuring trade body R3 said “The figures published today show the highest levels of corporate insolvency since 2012. This has been driven by an increase in all forms of insolvency process – but Creditors’ Voluntary Liquidations have peaked to their highest recorded figure of 4,908, suggesting that many directors are opting to close their businesses as they lack confidence in their trading prospects in the current climate. The steady rise in Compulsory Liquidations we’ve seen since the start of the year also suggests that creditors are now making use of their power to issue winding-up petitions to try and claw back monies they are owed.

“Despite May’s unexpectedly positive GDP figures, today’s statistics show that now is not the time to be complacent about the state of the economy. The current economic headwinds are only likely to get worse before they get better, and this will mean businesses in England and Wales will have a tough second-half of the year.

“With household disposable income dropping for the eighth consecutive month in June, consumers are having to prioritise household bills before they can think about spending their money elsewhere – and this will have a knock-on effect to businesses that simply won’t see the footfall they are used to.

“This, coupled with a combination of soaring costs across the board, supply chain issues, and a tight labour market, has meant an uphill battle for many businesses, especially for those still reeling from the pandemic.

“For company directors concerned about their prospects in the months ahead, now is the time to make sure they have a clear plan in place for the future. The economy is particularly fragile at the moment and businesses should be prepared for this to deteriorate as we enter the second half of the year.

“I would urge company directors to understand how to spot the first signs of business distress and to seek advice from a qualified professional as soon as they become concerned. Doing so will give them more time to think about the future of their business and more options to turn their financial situation around.”

Samantha Keen, UK Turnaround and Restructuring Strategy Partner at EY-Parthenon, said “The 81% year-on-year increase in the number of UK company insolvencies in Q2 2022 has, once again, been largely driven by a significant rise in Creditors’ Voluntary Liquidations (CVLs) which accounted for almost nine-in-ten of all insolvencies in Q2.”

“The record levels of CVLs are the first tranche of insolvencies we expected to see involving companies that have struggled to stay viable without the lifeline of government support provided over the pandemic. We expect further insolvencies in the year ahead among larger businesses who are struggling to adapt to challenging trading conditions, tighter capital, and increased market volatility.”

“EY-Parthenon’s latest Profit Warnings analysis found that warnings from UK-listed companies increased 66% year-on-year in H1 2022 with over half (58%) citing rising costs. As profit warnings increase, we’re seeing more companies issue multiple warnings with many approaching the ‘three warning rule’ where, on average, one-in-five companies delist within a year of their third warning, most due to insolvency.”

“While many companies have been grappling with rising costs and supply chain issues in the first half of the year, falling consumer confidence and demand is likely to be the next significant headwind. The recent EY ITEM Club Summer Forecast downgraded consumer spending growth for 2022 to 4.1%, down from the 4.9% expected in early February.”

“The impact from the slowdown in consumer spending is likely to be felt in the autumn, just as many retail and hospitality businesses gear up for the all-important ‘golden quarter’. These businesses, which are highly sensitive to fluctuations in consumer demand, will be most vulnerable.”

“Companies will need ensure they adapt quickly in order to safeguard their long-term survival during what looks to be a tough autumn, where lower growth, tighter capital and market volatility are likely to be the norm.”

Commenting on the highest number of company insolvencies in the UK since 2009, Douglas Grant, Group CEO at Manx Financial Group PLC, said: “Today’s data is very sadly unsurprising and is likely to reflect an ongoing trend for the coming months. Our research recently revealed that 22% of UK SMEs that needed external finance and/or capital over the last couple of years, were unable to access it. Indeed more than a quarter have had to stop or pause an area of their business because of a lack of finance. SMEs continue to struggle with accessing finance and that worryingly, this lack of availability is costing them and the UK economy in terms of growth at a time when it is needed the most. The amount of growth that is being sacrificed is significant and will require new solutions which are designed to address this funding gap.”

“Last week’s announcement of the extension of RLS (“RLS Phase 3”) was very good news for UK business. The Recovery Loan Scheme (RLS), which Conister was accredited for in August last year, has provided the necessary catalyst that many sectors required to thrive. As demand for working capital soars to new highs, more businesses desperately require liquidity provisions to counteract record inflation levels, rising interest rates, supply chain issues and  increases in wages. With the cost of borrowing set to increase, many SMEs are facing their own cost of living crisis. While the announcement does go some way to stemming the short term pain, we have for some time been calling for a sector focused permanent government-backed loan scheme which brings together both traditional and alternative lenders to guarantee the future of our SMEs. As the government looks for ways to power the economy’s resurgence, the importance of a permanent scheme cannot be understated, it could act as the fundamental difference between make or break for many companies, and in turn, our economy. We very much hope this is something that becomes a reality.”