A surprise month-on-month fall in the number of corporate insolvencies in England and Wales does not reflect current tough trading conditions, with the number of struggling businesses in the region likely to rise significantly over the next year.
This is according to the Midlands branch of the UK’s insolvency and restructuring trade body R3 and comes on the back of latest figures published by the Insolvency Service which show that corporate insolvencies decreased by 20.4% in July 2023 to a total of 1,727 compared to June’s total of 2,169, and by 5.7% compared to July 2022’s figure of 1,831.
Despite this, corporate insolvency levels increased by 57.6% compared to July 2021 and by 19.9% against the pre-pandemic figure for July 2019.
R3 Midlands chair Stephen Rome, a director of law firm Thursfields in the region, said: “The fall in corporate insolvency levels is due to fewer businesses entering a Creditors’ Voluntary Liquidation. However, a significant number of directors are still using this process to close down their operations.
“Care needs to be taken that the monthly fall in corporate insolvencies does not send out the wrong message. Numbers are still well above pre-pandemic levels with a raft of economic issues continuing to bite down hard on businesses.
“Costs are rising at a time when people are cutting back on spending, leaving companies facing the challenge of squeezed margins and shrinking revenues and having to work out whether to absorb their cost increases or pass them onto their customers.
“Alongside requests for wage increases are higher energy bills, as the costs of cooling premises in the summer are just as challenging as keeping them warm in the winter. These are making firms more cautious about investment or recruitment – especially as the increased cost of borrowing will make raising funds more challenging.
“As we move towards the end of the summer – a period of time which is traditionally quiet for many companies – we urge directors to be vigilant to the signs of financial distress and act swiftly if any present themselves.
“Cashflow issues, problems paying rent, staff or suppliers, or a piling up of stock can all be red flags for the long-term health of the business. In such instances, directors should seek professional advice as soon as possible. This will give more potential solutions than acting only when problems become more severe.”
