Bankruptcy: More UK companies fail as inflation wreaks havoc

The number of corporate bankruptcies in the first three months of 2023 is dangerously close to a 13-year high.

The combined impact of the pandemic, inflation and rising borrowing costs is having a devastating impact on businesses in England and Wales.

The result was 5,747 corporate bankruptcies, up 18% from the same period last year, and close to 5,969 filed bankruptcies in the last quarter of 2022, the highest number since mid-2009.

The number of creditor voluntary liquidations (CVLs) has also remained close to the highest quarterly level in Bankruptcy Service data since the 1960s. Forced liquidations have also increased.

The real estate crisis hit builders hard: in March 2023, they accounted for 18 percent of all bankruptcies, with 405 builders going bankrupt.

Bankruptcy experts said companies are struggling to get funding and repay loans due to inflation and high interest rates, while many clients are cutting back on spending due to the difficult overall economic outlook.

A similar picture emerges from the latest data for Scotland, where corporate bankruptcies hit an 11-year high.

The number of corporate bankruptcies rose to 1,132 from 2022 to 2023, an increase of almost a third (32.6 percent) from the previous year. The total for 2022-2023 is almost a fifth (19.4 percent) higher than before the pandemic: 948 bankruptcies were registered in 2019-2020.

Samantha Keen, president of the Association of Bankruptcy Professionals, said: “The significant increase in corporate bankruptcies compared to last year is once again due to voluntary liquidation by creditors, not bailouts.”

According to the agency, the number of people who took a breath from their debt problems also grew by more than a third compared to last year. The system protects people from their creditors for 60 days, freezes most interest and penalties, and suspends enforcement actions.

The spike in respite bookings, 409 of them for mental health reasons, may explain why the number of people who became financially insolvent in the first quarter of this year was 2 percent lower than in the last quarter of 2022.

The 29,017 individual bankruptcies registered in the last three months are also 9 percent lower than in the same quarter of the previous year. Individual Voluntary Arrangements (IVAs) – debt agreements with creditors to pay all or part of the amounts owed account for 70 percent, while debt forgiveness is 24 percent and bankruptcy is 6 percent.

Nicky Fisher, president of bankruptcy trading organization R3, said: “Money is at the forefront, and energy and food prices, and the current and future state of the economy, continue to be a concern.”

“We have also seen household lending increase, with more and more people using credit to pay their bills. It is clear that people choose this path, but it is not viable.”