When the coronavirus pandemic broke out almost two years ago, businesses in the UK did not foresee the full extent of disruptions they would face. According to Government data, insolvencies in England and Wales in November 2021 hit their highest levels since January 2019. However, the COVID-19 induced recession, compounded by Brexit-related supply chain issues and increasing costs, will ultimately lead to a continuing rise in insolvencies in 2022. This can be largely attributed to bankruptcies of businesses that were saved by the Government during the pandemic.

The Government’s response to the economic crisis caused by the COVID-19 pandemic involved the introduction of fiscal support initiatives including the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS). The support schemes largely shaped the insolvency forecast throughout 2020-2021. In 2020 the number of companies falling into insolvency processes decreased by 27 percent. This trend continued into 2021 as companies were shielded from the economic implications of the pandemic. As we move into the new year, things aren’t looking up as insolvencies are expected to increase by 33 percent in 2022.

As these schemes are gradually phased out, we saw the highest levels of Insolvency in November 2021 since the beginning of the pandemic. This was largely driven by a rise in the number of Creditor Voluntary Liquidations. This rise in CVL’s hit its highest level in the latter half of 2021 in more than two and a half years. This increase of CVL’s underpins the reality that UK businesses are facing unprecedented challenges as many business directors are choosing to close their businesses.

As well as COVID-19 related disruption, many businesses are now dealing with a combination of supply chain issues, soaring inflation, rising interest rates and labour shortages. Worried about the effect of inflation and rising costs, The Bank of England became the first major bank since the beginning of the pandemic to raise interest rates. The BoE for the first time in more than 3 years, raised its interest rates from 0.1 percent to 0.25 percent. What is more, the outbreak and spread of the Omicron variant throughout the UK has left many businesses in real financial danger heading into 2022.

As the escalation of insolvencies seems inescapable, Insolvency Practitioners are gearing up for a rise in the number of distressed businesses in 2022. Insolvency Practitioners advise that if directors are concerned about their business, its debts or future prospects, they should seek expert support in dealing with those issues sooner rather than later.

If you need assistance on any of the above, please do not hesitate to contact our Insolvency team to discuss further.