Expert warns of record insolvencies

11 May 2023

Insolvencies and director disqualifications will continue to hit record levels in the coming months due to a “perfect storm” of rising costs, a dip in consumer spending and the Covid fall-out, a Higgs LLP legal expert has warned.

Company insolvencies reached new highs in March this year – and analysts predict it could be the tip of the iceberg as businesses battle to stay afloat.

“The circumstances for the rise in insolvencies vary sector-by-sector,” said Lauren Hartigan-Pritchard, Head of Restructuring & Insolvency at award-winning law firm Higgs LLP.

“The construction industry has been hit hard by increases in the cost of energy and materials, while the hospitality industry is still recovering from the impact of Covid, interest rates and reduced consumer spending due to the cost of living crisis.

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“Each sector has its own challenges. We are witnessing a perfect storm of events that is making life very difficult for many businesses right across the country."

Lauren Hartigan-Pritchard

Head of Restructuring & Insolvency, Higgs LLP

“Unless the economic picture improves, high levels of business failures are guaranteed.”

The latest statistics show there were 2,457 company insolvencies in March this year – a 16% rise on the same month in 2022.

That figure represented a record since insolvency figures began being recorded three years ago.

Compulsory liquidations - including partnership winding-up orders – stood at 288 in March, up by a huge 106% year-on-year.

Overall in Q1 there were 5,747 company insolvencies, 18% higher than in Q1 2022.

The worst-hit sectors, according to the most recent Government stats for February, were construction (18% of all), motoring (15%), hospitality (14%), admin services (10%) and manufacturing (8%).

Meanwhile, during the financial year 2022/23 932 directors were disqualified - a 16% increase on 2021/22.

Around a half of director disqualifications in 2022/23 (459) included an allegation relating to abuse of the Government’s Covid-19 Bounce Back Loan Scheme.

Suky Mann, Principal Associate in Higgs' Restructuring and Insolvency team, said: “With Government figures suggesting that Bounce Back fraud has resulted in an estimated £3.5 billion in losses, we suspect this is the mere tip of the iceberg in a raft of disqualifications to come in the next 12 months.

“It’s not just directors of insolvent companies that have felt the full force of the Insolvency Service. In December 2021 the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 gave the Insolvency Service new powers to disqualify directors of dissolved companies.”

Lauren said early action was essential for any business worried either about potential insolvency or any director facing investigation by the Insolvency Service.

“There are often a whole host of restructuring options available if businesses seek advice at an early stage,” she said. “Unfortunately, 95% of people leave it until it’s too late.

“If a business is struggling week to week, we can look at re-financing options. We can talk about improving accountancy practices or examine a particular overhead which has increased and is causing problems.

“Our team can offer advice on profitability or look at options such as administration.

“If a business is in a precarious position, it doesn’t always have to end in insolvency.”

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