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Higher costs trigger rise in insolvencies

by November 16, 2022
November 16, 2022
Higher costs trigger rise in insolvencies

Company insolvencies rose sharply last month as businesses were faced with higher inflation and an uptick in winding-up petitions from HM Revenue & Customs.

The number of corporate insolvencies increased by 38 per cent year-on-year from 1,410 to 1,948, according to figures from the Insolvency Service. The numbers were driven by 1,594 so-called creditors’ voluntary liquidations.

Compulsory liquidations rose by 357 per cent annually to 242. The service said that this was partly due to HMRC issuing more demands for repayment from companies.

The tax authority was barred from issuing winding-up petitions during the pandemic as businesses were forced to shut down by the government. However, these restrictions were removed on April 1 this year, leading to an increase in activity against companies.

David Hudson, restructuring partner at FRP Advisory, said: “Inflation is devastating margins and throwing into doubt historically sound business models, which is eating away at confidence, undermining recovery plans and, crucially, testing the resolve of lenders.”

Joules, the fashion retailer, became the latest casualty on the high street this week as it called in administrators at Interpath Advisory.

It had sought a bridging loan as it feared defaulting on a Barclays facility due at the end of the month, and it had approached strategic investors about a possible capital raise.

But Tom Joule, its founder, warned yesterday that the business had become too complex to pursue the cost savings required to secure the company’s future.

Nicky Fisher, vice-president of R3, the restructuring trade body, said: “The jury is still out on whether the Christmas trading period, which will include an unseasonal football World Cup, will lead to the traditional boom many businesses are hoping for, or whether disappointing sales over the festive period will lead to businesses turning to an insolvency process to resolve their financial issues.”

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Higher costs trigger rise in insolvencies

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