Company directors urged to act now as cash flow pressure drive surge in insolvencies
Company directors urged to act now as cash flow pressure drive surge in insolvencies. Headwinds likely to cause issues even for better-performing businesses in 2023. Hospitality and retail businesss struggling in the run up to Christmas as result of the cost of living increases and strike action. Directors advised to act now as economic climate drives increase in insolvencies.
Insolvency figures released this week for November 2022 by the Government’s Insolvency Service show that the number of registered company insolvencies in November 2022 was 2,029 This is 21% higher than in the same month in the previous year (1,676 in November 2021), and 35% higher than the number registered three years previously (pre-pandemic; 1,505 in November 2019).
Leading restructuring and insolvency professional Oliver Collinge from PKF GM said: “The large rise in corporate insolvency numbers is not surprising compared to this time last year. But a material increase on pre-pandemic levels, as we are seeing now, is concerning. Unfortunately I think this is the start, not the peak, of rising insolvencies.
“It is also challenging for firms to build reliable forecasts at this stage, given the current economic uncertainties, this in turn makes raising additional liquidity or capital more challenging. Speaking to an expert to discuss the options available is key.”
Tough 2023 ahead as cash flow pressure on businesses grows and even better-performing businesses won’t be immune
Oliver continued: “The current headwinds will create challenges even for some better-performing businesses, not only those that were already in survival mode. The cost-of-living crisis has led to the biggest fall in real pay on record and the price of energy remains high. Pressure on cash continues, and unfortunately, we expect to see heightened levels of business failures for some time to come.
“Whilst the Covid loans, support packages and interventions staved off many business closures; the repayments on these loans and other debt accrued during Covid, together with the worsening macro-economic climate means many businesses are beginning to experience severe cash flow pressure. It’s critical businesses act early and seek advice if they are struggling now or think cash flow may be squeezed in the coming months. The earlier they act, the more options they’ll have to secure the business’s long-term survival.”
Reduced Christmas spending and strike action impact retail, hospitality and leisure
“Many families are under financial stress and we are seeing reduced spending on the high street in the run up to Christmas as individuals brace themselves for a tough year in 2023. The ongoing strike action and cold weather is also having a knock on effect on those businesses, particularly in the hospitality, leisure and retail sectors, who depend on a surge in Christmas spending.”
Company directors urged to act now
Oliver Collinge added: “There are plenty of proactive things you can do now to build resilience into your business for the post-Covid economy; don’t leave it too late. Having a restructuring professional guide you through the process can be invaluable in getting the best outcome and will also help you understand and mitigate your risk as a director.
“For struggling businesses, it’s not too late to begin negotiations with landlords and creditors to develop manageable repayment plans. Will revenues be high enough to support your cost base? Will cash flows be sufficient to deal with the additional debt burden (both formal and informal) that has accrued during Covid? Perhaps a CVA is something which should be considered or, where you may need to take the difficult decision to make redundancies to survive, consider applying for government funding to meet the short-term cash impact of this.”
Of the 2,029 registered company insolvencies in November 2022:
- There were 1,595 CVLs, which is 5% higher than in November 2021 and 50% higher than in November 2019;
- 290 were compulsory liquidations, which is 437% (5.4 times) higher than November 2021 and 7% higher than November 2019;
- 10 were CVAs, which is the same as November 2021 but 52% lower than November 2019;
- There were 134 administrations, which is 44% higher than November 2021 but 11% lower than November 2019; and
- There were no receivership appointments.