Insolvencies reach 30-year high as interest rates soar

BUSINESS insolvencies hit a 30-year high in 2023 as interest rates, the cost of living crisis and the pandemic combined to pull companies under.

More than 25,000 companies became insolvent last year, with more than 2,000 in December alone, according to the Insolvency Service.

This is up from just over 22,000 in 2022, and also above a peak of 24,000 in 2009, during the financial crisis.

Nicky Fisher, president of R3, the UK’S insolvency and restructuring trade body, said years of building pressure have pushed companies over the edge.

“Corporate insolvency numbers have reached levels not seen in decades as a result of a perfect storm of economic issues and milestones,” she said.

“The Covid hangover, which was a result of insolvency numbers being suppressed by government support measures, is a key driver, but firms have also faced the end of [assistance], increased creditor pressure, rising inflation, the effect of the cost of living crisis on income levels and rising costs of energy and wages − all of which will have affected their income and their financial stability.

“Faced with these issues, and without any sign of a sudden economic upturn, directors have turned to insolvency processes to resolve their financial issues and their businesses’ debts.”

There is little sign of a drop in the pace of insolvencies, with inflation still above the Bank of England’s 2pc target and officials holding interest rates at 5.25pc, their highest level since 2008.

Meanwhile Covid support schemes have been cut back, leaving companies to assess their longer-term viability, while beset by extra costs.

The conflict in the Red Sea threatens to impose more pressures, delaying imports. It brings the risk of higher costs, too, from energy bills as oil and gas supplies are delayed, and wider shipping costs as freight rates rise in response to the crisis. Goods such as consumer electronics are in some cases being flown into the country instead of sent by ship, adding to costs.

Gareth Harris, partner at RSM UK Restructuring Advisory, said the increase “demonstrates clearly how many businesses across many sectors are struggling financially and what a tough trading environment they are facing”.

“With continuing economic uncertainty and such low growth it looks like it will be a tough 2024 for many, and it could be the end of the year before we see any real reduction back towards more ‘normal’ levels of monthly insolvencies,” he said.