Corporate insolvencies on the rise across the North…

Corporate insolvencies on the rise across the North East and Yorkshire, say experts

There was a rise in the number of businesses across the North East and Yorkshire that became insolvent in the first half of 2022.

Analysis from Interpath Advisory - formerly KPMG’s UK restructuring practice - shows corporate insolvencies rose 35% in the first six months of the year, as a total of 62 companies across the two regions fell into administration, up from 46 during the same period of 2021. The trend reflects the UK picture which shows 451 companies fell into administration in the first half of 2022 – up from 312 companies in the first half of 2021, but not at the pre-pandemic levels of 655 in the first half of 2020.

Interpath said insolvencies could be seen across a range of sectors as building and construction, industrial manufacturing, and retail businesses experienced the sharpest rises.

James Lumb, managing director and head of Interpath’s team in the North East, said: “Businesses in our region continue to be buffeted by an array of headwinds, from inflation and interest rate rises, to supply chain disruption and staff shortages, not forgetting the war in Ukraine and now political uncertainty on the home front with the impending change in Prime Minister.

“Inflation – both in terms of input costs and wages - is proving to be a particular challenge, as organisations tread that fine line of how much they can pass rising input costs on to customers, while wrestling with the conundrum of balancing pay rises against double-digit inflation.

“With five consecutive interest rises over recent months, and undoubtedly more to come, plus fuel and energy costs continuing to rise, there’s no surprise that both consumers and businesses alike are thought to be preparing to batten down the hatches in the autumn.”

Mr Lumb added: “Many businesses are now spending the cash buffers built up over the last couple of years, and so from a cashflow perspective, appear to be reasonably healthy. However, their balance sheets and profit and loss statements are weak, and the reality is that it won’t be too long before cash outflows catch up.

“Remember: a large number of businesses were propped up during the pandemic by the myriad of government support schemes, coupled with a supportive lending environment, leading to higher availability of cash.

“However, anecdotally we are now starting to see two things. First, in certain circumstances, institutions are becoming more cautious in their approach to lending. Should even a small number of lenders start to catch a cold, this will become problematic for businesses, as they plan for growth and investment, burn through their cash reserves, and inflation continues to rise.

“Secondly, in recent weeks we have seen instances of enforcement action being taken and winding-up petitions being issued. While it’s too early to say that this is becoming a trend, it’s certainly notable given the moratorium on enforcement that was in place during the pandemic.”