Comments on today’s Insolvency Service Q2 2022 company insolvency statistics

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“The 81% year-on-year increase in the number of UK company insolvencies in Q2 2022 has, once again, been largely driven by a significant rise in Creditors’ Voluntary Liquidations (CVLs) which accounted for almost nine-in-ten of all insolvencies in Q2.

“The record levels of CVLs are the first tranche of insolvencies we expected to see involving companies that have struggled to stay viable without the lifeline of government support provided over the pandemic. We expect further insolvencies in the year ahead among larger businesses who are struggling to adapt to challenging trading conditions, tighter capital, and increased market volatility.

“EY-Parthenon’s latest Profit Warnings analysis found that warnings from UK-listed companies increased 66% year-on-year in H1 2022 with over half (58%) citing rising costs. As profit warnings increase, we’re seeing more companies issue multiple warnings with many approaching the ‘three warning rule’ where, on average, one-in-five companies delist within a year of their third warning, most due to insolvency.

“While many companies have been grappling with rising costs and supply chain issues in the first half of the year, falling consumer confidence and demand is likely to be the next significant headwind. The recent EY ITEM Club Summer Forecast downgraded consumer spending growth for 2022 to 4.1%, down from the 4.9% expected in early February.

“The impact from the slowdown in consumer spending is likely to be felt in the autumn, just as many retail and hospitality businesses gear up for the all-important ‘golden quarter’. These businesses, which are highly sensitive to fluctuations in consumer demand, will be most vulnerable.

“Companies will need ensure they adapt quickly in order to safeguard their long-term survival during what looks to be a tough autumn, where lower growth, tighter capital and market volatility are likely to be the norm.”

Samantha Keen, UK Turnaround and Restructuring Strategy Partner at EY-Parthenon