Insolvencies on the rise – businesses need to act early and focus on cash flow plans

Following the publication today of the latest monthly insolvency statistics for September by The Insolvency Service, Claire Burden, Partner in the Advisory Consulting team at Tilney Smith & Williamson, the wealth management and professional services group, comments:

The monthly insolvency statistics published by The Insolvency Service for the month of September 2021 shows the number of registered company insolvencies were at their highest since the start of the first UK lockdown in March 2020. 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 September 2021 were 56% higher than September 2020 and overall are now close to pre-pandemic levels (September 2021 numbers were 4% lower than the numbers registered in September 2019).

The statistics will include some high profile energy businesses, due to the high cost of gas. We expect this energy cost issue to reverberate into additional sectors (manufacturing, consumer products and others) and cause further failures when combined with existing pressures of increased transport costs and supply issues.

The number of Creditors’ Voluntary Liquidations (CVLs) in England & Wales were 80% higher than in September 2020 and 21% higher than in September 2019. This is mainly driven by the large number of small businesses that are going insolvent, where directors are instigating CVLs and there are limited options to sell as a going concern.

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, we expect this trend to reverse steadily in the coming months and going into the new year, with the ending of the furlough scheme in September and commercial tenant protections by March 2022.

A third of UK’s small businesses have been classified as highly indebted as per a recent Bank of England report, alongside its quarterly financial stability update. The analysis showed that 33% of SMEs held debt levels of more than 10 times their cash balances, versus 14% before Covid-19.

In this continuing volatile environment, SMEs need to focus on cash flow plans, including repayment of Covid loans, HMRC arrears and rising operating and product costs alongside repaying debt that was in place pre-pandemic. As always, businesses can avoid insolvency if they seek advice early enough.