The number of companies going bust jumped by almost a fifth in August compared with a year earlier as the toll of high interest rates and falling sales hit struggling businesses.
The Insolvency Service said 2,308 firms in England and Wales collapsed in August, which was 19% more than in August 2022 and higher than pre-pandemic levels.
Construction companies, retailers and manufacturing firms headed the list of sectors most affected by firms becoming insolvent.
The retailer Wilko, which went into administration on 10 August and has subsequently collapsed with the loss of 12,500 jobs and 400 stores, is expected to signal further company insolvencies in the remainder of the year.
Corporate insolvencies increased by 71% from August 2021’s total of 1,347 and by 69% compared with pre-pandemic levels in August 2019 (1,365), said the industry body R3.
The Insolvency Service said one of the biggest drivers was action by the tax authority HMRC, which has increased the number of winding up orders for unpaid tax in recent months.
A breakdown of the figures showed the increase was mostly due to a rise in creditors’ voluntary liquidations (CVLs), in which a company is voluntarily wound up either by its directors or its shareholders. There were 1,880 CVLs last month, 13% higher than in August 2022.
The number of administrations, which allow an insolvency practitioner to take over the running of a firm, usually to find a potential buyer, was also higher than in August 2022. HMRC and other creditors secured winding up orders for 221 compulsory liquidations in August, 45% higher than in August 2022.
Insolvency practitioners said the UK had avoided the avalanche of companies going bust predicted in the months after the Covid-19 pandemic first hit in 2020, but was now seeing the effects of tighter and more costly lending on the finances of firms left vulnerable by the cost of living crisis.
Nicky Fisher, the president of R3, said: “The sad fact is that businesses are being hit from a variety of angles – and all these blows have an effect on their bottom line. Cost inflation has been a problem for some time and while this is expected to ease it is still sitting higher than many had predicted.”
Andy Davis, the strategic advice director with accountancy firm Azets, said the current volume of insolvencies was manageable, but he was concerned by the downside risks driven by the cost of living crisis and the high level of liquidations.
He said: “We are seeing a reduction in access to capital and liquidity which, when added to the pressures businesses are already under, is likely to lead to even shorter runways when a business becomes stressed.”
David Hudson, a restructuring advisory partner at FRP, said it was likely more companies would collapse in the months ahead: “The coming year will bring more and more insolvencies as the damage from months of rising borrowing rates, falling demand and high inflation gradually feed through.
“Old challenges could still rear their head again too. As the mercury drops, higher costs for electricity, gas or fuel could return as a significant pressure on energy-intensive companies, particularly those in manufacturing. Altogether, this means that for much of UK plc the watchwords will continue to be resilience and adaptation.”
