Corporate insolvencies in England and Wales rose 16 per cent in March compared to the same month last year, as businesses struggled with higher costs and a weakening economy.
The number of filings hit 2,457, according to the latest figures from the Insolvency Service, the highest monthly figure since the agency started producing comparable monthly data at the start of 2019. Compared to March 2019 before the Covid-19 pandemic struck, the number of declarations jumped 55 per cent.
Christina Fitzgerald, president of R3, the insolvency and restructuring trade body, said businesses were “struggling” with rising costs while consumers were “cutting back on discretionary spending, and when staff [were] requesting pay rises to cover their bills”.
In the year to March, creditors’ voluntary liquidations rose 9 per cent to 2,011, while compulsory liquidations more than doubled to 288, according to the data published on Tuesday. Businesses file for the formal process of insolvency when their assets no longer cover their debts or they can no longer finance their borrowing.
The rise in filings comes as businesses are facing the highest borrowing costs since 2008 with the Bank of England raising its benchmark rate to 4.25 per cent. Separate official data released on Tuesday underlined the pressures in the labour market with wage growth remaining unexpectedly high in February.
At the same time, high inflation has led to the economy stagnating since the middle of last year. Price pressures easing but only slowly with economists polled by Reuters expecting inflation in March to fall to 9.8 per cent when the official data is published on Wednesday — 1.3 percentage points below the 41-year high of 11.1 per cent in October.
“Businesses are struggling to secure financing and pay off their loans due to high interest rates and the wider impact inflation and consumer sentiment is having on sales and cash flows,” said David Kelly, head of insolvency at PwC. He expected insolvencies would “likely continue to rise in the short term, making for a challenging spring”.
Some £154bn of Covid support from the taxpayer, along with temporary measures that helped companies restructure and avoid entering administration, kept the number of insolvencies low during the pandemic. But the winding up of those measures meant the number of filings had “now returned to and exceeded pre-pandemic levels”, the Insolvency Service said.
The data also showed that individual insolvencies rose 2 per cent to 672 in the year to March. Debt relief orders — a measure that offers temporary protection to debtors from certain creditors — rose 35 per cent to 3,383 over the same period.
Fitzgerald said that the figures suggested “that the cost of living crisis is having an effect on people’s solvency, but that a greater number are coming to an arrangement with their creditors without requiring a bankruptcy process”.
Source: Economy - ft.com
