Company insolvencies continue rising as businesses face ‘perfect storm’

Pranav Nadkarni

In this article, Pranav Nadkarni, Director at Tilney Smith & Williamson, the wealth management and professional services group, comments on the publication of the latest monthly insolvency statistics for October by The Insolvency Service.

The monthly insolvency statistics published by The Insolvency Service for the month of October 2021 shows the number of registered company insolvencies continued the rising trend seen over the last couple of months. This is effectively a rebalancing back to normalised insolvency levels across the economy, after the government support measures during the Covid pandemic.

Total company insolvencies in England & Wales in October 2021 were 63% higher than October 2020 and overall are now close to pre-pandemic levels (October 2021 numbers were 5% lower than the numbers registered in October 2019).

The number of Creditors’ Voluntary Liquidations (CVLs) in England & Wales were 19% higher than pre-pandemic levels. The number of compulsory liquidations and bankruptcies have continued to be lower than 2020 or 2019 averages, partly driven by furlough schemes, protection for tenants and low interest rates. However, there was a 64% rise in number of compulsory liquidations and a 17% increase in number of administrations in October compared to September 2021. We expect this to continue over the coming 3-6 months with the ending of most of the government support schemes in September and the commercial tenant protections by March 2022.

We have entered a critical new phase, as October 2021 represents the first full month after most of the Government’s temporary Covid support measures have either ended or have been replaced by new tapering measures – such as delaying prohibitions on commercial evictions to March 2022. These measures will provide some relief to high-street retailers and other brick-and-mortar-driven businesses.

However, at the same time, there are several other macro-economic factors that are currently in play – such as inflationary pressures – which will impact both households and businesses. The continuing threat of increases in raw material costs and ongoing supply chain disruptions (driven by global demand-supply mismatches and geo-political tensions) and a tight labour market, could potentially drive several businesses into a perfect storm over the next 3-6 months. To top it off, the threat of further global Covid lockdowns hang dangerously by the thread!

It is important for businesses to continually review their liquidity positions and stress test their profitability metrics, against these cost pressures. A regular review of the working capital cycle can help optimise cash required to run the business. While structural and macro-economic conditions may not be controllable, businesses that plan early and regularly can mitigate the most-significant risks leading to insolvency.