Claire Burden, Partner in the Advisory Consulting team at Evelyn Partners, the wealth management and professional services group, comments on October’s insolvency statistics, published today by The Insolvency Service.
The insolvency statistics published by The Insolvency Service for October 2022 show that company insolvencies are increasing as we head into an economic downturn and with pandemic-era business protection measures behind us. The figures show a 16% jump from September, and represent a 38% increase versus the same month last year. The number of company insolvencies continue to be driven by creditors’ voluntary liquidations (CVLs), with 1,594 recorded in October 2022, up 53% from the pre-pandemic October 2019.
242 companies entered compulsory liquidation in the last month, four times as many as in October last year, as winding-up petitions presented by HMRC increase. The liquidation statistics are particularly concerning after Evelyn Partners research suggests an increase in owner funding across the market, as businesses face challenges accessing capital. For instance, a survey of more than 500 UK business owners with revenues of £5m upwards shows that UK business owners are taking measures to invest their personal wealth into their businesses before letting staff go or cutting wages:
- 23% of business owners have already sold or re-mortgaged their home to generate funds for their business, with a further 22% having invested their personal savings
- As access to capital becomes more difficult and interest rates increase, a fifth have already taken out a personal loan to bridge finances, with 43% considering taking this step
While we understand that owning a business can be deeply personal, putting personal wealth to work should only be considered a last resort. Business owners need to consider why their business needs additional funding and whether it truly is a one-off – as well as how and when personal wealth will be repaid. If their businesses are struggling and they are forced to sell at a lower price, or even liquidate their assets more quickly than expected, business owners need to ensure they have the right kind of security in place to safeguard their savings.
Despite lower rates of personal bankruptcies versus pre-pandemic levels, perhaps as a result of changes in eligibility criteria, Individual Voluntary Arrangements are on the rise, with the three-month period ending in October 2022 showing figures 13% higher than the same period in 2019. As we look ahead to a winter of high energy costs, inflation and an economic downturn, directors worried about the financial position of their businesses should seek professional help as early as possible. This gives them the best opportunity to identify a range of solutions to shore up businesses, or increase the likelihood of a rescue before it is too late.