Insolvencies Rise in the UK

The outlook for the UK economy is a hot topic at the moment and certainly one that is full of doom and gloom. A recent article in The Financial Times suggested that 2023 will see corporate insolvencies peak at a higher level than the last financial crisis in 2008. A market laboured with rising inflation and falling demand seems to suggest this could be an accurate prediction. This is coupled with the end of Government support during the pandemic.

Last week, Ric Traynor, executive chair of Begbies Traynor, who suggested the number of company failures could exceed the last peak in 2009. He said that, unlike then, interest rates were now rising, making it more expensive for struggling companies to survive this recession.

Traynor said the biggest problems would occur for the “usual suspects” of companies in industries that focus on servicing domestic clients. This is backed by the belief that low confidence will cause a sharp downturn in spending. FRP Advisory chief executive, Geoff Rowley, highlighted that much of the pressure on companies is coming from their investors, who were increasingly unwilling to support start-ups, for example, that showed no signs of breaking even after years of investment. “It’s often investors saying ‘no more’ rather than the traditional high street banks,” he said, pointing to the high number of technology businesses in distress. “We see debt issues manifesting in 2023 and beyond as refinancing comes up. We are starting to see real challenges out there.” Traynor and Rowley predicted that the insolvencies would be worsened by the unwinding of government pandemic support, with loans made by banks under various state-backed schemes coming due for repayment next year. “It’s been well spent and we are now finding out who can repay and who can’t,” said Traynor.

The report published last Tuesday sparked the popular “Behind the Money” podcast host, Martin Wolf, to comment “Uncertainties persist over how long the available liquidity and government-backed loans can sustain troubled businesses and how proactive key creditors like HMRC and institutional lenders will be on addressing overdue debts,”.

Whilst certain levels of insolvencies and liquidations are unavoidable it is also worth remembering that recessions can spark creativity, exceptional pivoting and positive change. There are always businesses that start in a recession that go on to be global players – Netflix, Revlon, Air BnB, Microsoft and even Walt Disney thrived from their inception in a recession