Restructuring Insights

In that backdrop, for 2022, the number of insolvencies and Members’ Voluntary Liquidations (MVLs, ie solvent liquidations) nationwide rose by 11.8% from 28,279 to 31,606 compared to 2021. 

Every region across the UK recorded an increase in insolvencies and MVLs year-on-year apart from London which posted a 5.9% decrease to 5,406 from 5,807 company processes. A spike in creditors’ voluntary liquidations provides a clear sign that many directors are taking the difficult step to accept they have reached the end of the road. They are engaging with advisers to take the appropriate steps to close businesses on their own terms and ideally preserve value for creditors, rather than roll the dice and potentially face a more distressed wind-down and expose themselves to personal financial risk.

Focusing on companies with revenues of more than £1m, and likely to employ larger numbers of workers, insolvency activity rose by 20.4% to 508 compared to 422 year-on-year.

Sector spotlight

The most active sectors for insolvency on a national basis were: Retail and Engineering & Construction, followed by Business Services, Power & Utilities and Mining. This reflects the pain points being applied across UK industry as consumer spending is retrenched, the shift to hybrid working continues to feed through, while input costs and energy prices remain high. 

Those five sectors represented more than half (52.7%) of UK insolvency activity for companies generating more than £1m in revenue and more than 81% of the £29.47billion of the total revenue impacted by these larger companies failing.

Looking forward

Company directors are under no illusions about the challenges in store this year - from stubbornly high inflation and rising interest rates to poor consumer sentiment and increasing raw material costs. They have survived a pandemic and continuing supply chain issues but their resilience is being sorely tested.

Working capital, the financial float which keeps businesses running before payment comes in for goods and services, needs to be carefully managed- especially as the end of the first quarter hoves into view.

The current challenging market conditions - where M&A pricing and deal  appetite are by no means certain - mean all options need to be considered - including contingency planning for restructuring. By the end of March, many businesses have several major issues which will be crystallising.

Fixed rate energy contracts are often typically renegotiated and renewed around this time, notwithstanding the government’s amended energy support package.

At the start of the tax year in April, trade credit insurance, the vital cover which allows companies to extend credit terms to their suppliers and protects them if those suppliers are not able to deliver goods and services, is often renewed. Providers are taking a much more stringent view of extending the cover which is perhaps understandable as company failures continue to rise.

IOUs will also start to fall on loans granted through the Covid Business Interruption Loans Scheme. Those who took out debt under the maximum three-year repayment terms will be called upon to pay their dues.

^{This data is seasonally adjusted and is therefore subject to change}

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