Home Finance & Investments R3 responds to Q1 2022 insolvency statistics

R3 responds to Q1 2022 insolvency statistics

Eleanor Temple, chair of R3 in Yorkshire

There were 4,896 underlying corporate insolvencies in Q1 2022 – an increase of 6.1% from Q4 2021’s figure of 4,615, but a rise of 112% on Q1 2021’s figure (2,309). Q1 2022’s figures were also 17.1% higher than Q1 2019 (4,182)

There were 32,305 personal insolvencies in Q1 2022 – an increase of 16.8% from Q4 2021’s figure of 27,668, and an increase of 14.2% on Q1 2021’s figure of 28,298. Q1 2022’s figures were 0.9% higher than Q1 2019’s (32,002).

Eleanor Temple, chair of insolvency and restructuring trade body R3 in Yorkshire and a barrister at Kings Chambers in Leeds, comments on the Q1 2022 corporate and personal insolvency statistics for England and Wales:

Corporate insolvencies
“This has been the busiest quarter for corporate insolvencies since 2012 as firms who have struggled with the economic consequences of the pandemic are now having to deal with the sharp rise in inflation. These statistics provide further proof that while the Government’s COVID support measures prevented an initial sharp rise in corporate insolvencies, the economic damage caused by the pandemic couldn’t be mitigated away forever.

“The main cause of the increase in corporate insolvencies this quarter is an increase in Creditors Voluntary Liquidations (CVLs), which are now at a level not seen for more than 60 years. It seems more and more directors feel they can’t carry on trading and are choosing to close their business’s doors before they are forced to.

“Administration numbers have also risen over the last quarter and returned to 2020 levels but are still nowhere near what they were before the pandemic. An increase in administrations suggests that there are a number of insolvent businesses that could potentially be rescued, as that is one of the main purposes of the process and an outcome members of the insolvency and restructuring profession will always aim to secure where possible.

“The figures published today reflect the tough climate businesses have been operating in over the last quarter. At a point where many businesses needed a return to normality, rising fuel and energy costs have put them under additional strain, and the effects of the increased cost of living has prevented the spending boom many were hoping for from happening.

“Although the economy has largely returned to pre-COVID levels in many respects, and consumer spending has increased, rising inflation and stagnant wage growth have left many people unwilling and unable to spend money on anything other than the basics.
“Businesses have also faced the end of the final set of COVID measures and creditors can once again issue winding-up petitions against companies for debts of £750 or more (with the exception of landlords with COVID rent arrears).

“This is a critical time for company directors and we urge them to be alert to the signs of financial distress and seek advice if they spot them or if they’re concerned about their business and its future.

“We know how difficult it is to talk about your financial worries, but having the conversation at an early stage typically leads to better outcomes for the business – and at the very least will give you more options and more time to take a decision about your next step than if you’d waited until the problem spiralled.

Personal insolvency
“Personal insolvency numbers are at their highest since Q4 2020 and this quarter’s figures are the highest first quarter’s figures since 2019 as the economic aftereffects of the pandemic and the increase in the cost of living take a toll on people’s financial health.
“The first quarter of this year was a worrying one for consumers. After two years of economic uncertainty caused by the pandemic, which led to many worrying about whether they’d have a job when the furlough scheme finished, people in England and Wales have had to contend with rising inflation – with fuel and food costs being particular pinch-points.

“Employment levels have remained strong, but wages haven’t kept pace with inflation, and many people are worried about the economy and their personal finances. And with household debt increasing and credit card borrowing rising, that situation could well become more concerning in the coming weeks and months.

“Our message to anyone who is worried about their financial situation is: seek advice as soon as possible. We know it’s incredibly hard to talk about your money worries, but having that conversation at an early stage, before your concerns spiral and your situation worsens, gives you more potential options for improving it and more time to take a considered decision about how you move forward.”