SMEs ‘sleepwalking into train crash’ as UK insolvencies soar

SMEs ‘sleepwalking into train crash’ as UK insolvencies soar

The true impact of the crisis is yet to be felt, one expert said

SMEs ‘sleepwalking into train crash’ as UK insolvencies soar

Mid-market businesses and their advisers must be proactive in fending off economic challenges amidst record high insolvency levels, according to Meghan Andrews, insolvency partner at Azets UK.

The latest figures released by The Insolvency Service show that, in the 12 months to August, the number of company insolvencies in England and Wales surpassed 20,000 – an eight-year high.

Andrews predicts that this upward trend will continue, warning businesses that the true impact of the global economic crisis is “yet to be felt”.

“This is the start, not the peak, of more business fatalities. The next 18 months will be extremely challenging, and many businesses are sleepwalking into a train crash.

“The current economic environment, characterised by rising prices and tighter financial conditions, is impacting companies’ ability to service debt. […] It is highly likely that the cost of business will increase, especially for companies that have taken out non-fixed rate loans.”

While the number of company insolvencies reported in the new figures was down 9% from the March 2022 peak, R3 analysis show a significant upward trend in the 12-month rolling numbers, which is now up 72% year-on-year.

“We urge anyone who is worried about their business or personal finances to seek advice as soon as possible,” said Christina Fitzgerald, President of R3.

“Talking about your concerns about money is difficult, but the sooner you seek advice, the more potential options you have open to you, and the more time you have to take a considered decision about your next step.”

‘Time to act’

Similarly, Andrews added that business have “significantly” more options available if they are alert to danger and seek advice early.

Securing funding from a lender that invests in distressed businesses in exchange for equity would enable the preservation of the business, she said,

“At first blush, this might seem unpalatable to an owner-managed business – but the reality is that a smaller percentage of something is better than 100% of nothing.”

Andrews also suggest that, where management would prefer to retain control of the business, they could apply for a moratorium, put together a restructuring plan or propose a company voluntary arrangement.

“All of these are processes designed to help businesses navigate disruption and emerge stronger,” she said.

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