Business insolvencies increase amid spiralling inflation
The number of companies entering into insolvency jumped by 39 per cent from February to March, due to higher interest rates coupled with inflationary pressures.
Official figures showed that 2,114 businesses entered into insolvency in March, up from 1,517 in February. The first quarter of the year saw the highest number of company insolvencies (5,197) in any quarter since the third quarter in 2017.
International audit, tax and advisory firm Mazars said increasing interest rates have made companies’ debts more expensive, which is likely to have forced indebted firms into insolvency.
Mazars said businesses have had to deal with rising inflation and energy costs in the first quarter of the year and, combined with HMRC’s move to recover outstanding arrears from companies that failed to agree a Time to Pay arrangement, means that companies are being left with few options.
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“Businesses that were just hanging on before the recent interest rate rises have seen the rise in borrowing costs push them over the edge,” said Rebecca Dacre, partner at Mazars.
“Between interest rates and inflation, this is the most difficult period for businesses since the height of the pandemic. This time they are having to manage without government support.”
“UK businesses will be hit by the ‘cost of living crisis’, just as consumers will be.”
Mazars said that the moratorium winding up petitions prevented creditors from applying to make a business insolvent because of unpaid debts during the Covid crisis, but this ended on 31 March.
The firm said the end of this protection for struggling businesses will likely result in more insolvencies in the coming months.
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“With no more government protection from their creditors, even more businesses can be expected to fail,” said Dacre.
“Insolvency practitioners are now busier than they have been in a very long time. There has long been talk of a ‘wave of insolvencies’ that would happen once the insolvency moratorium was lifted. We’re now starting to see it.”