Rise in insolvency ‘weighted towards’ small business: PwC

The warning comes after the government released the September insolvency statistics that found corporate insolvencies in the UK rose 16 per cent in September compared to a year earlier.

The Insolvency Service revealed that 1,679 companies registered for insolvency last month, up from 1,453 in September 2021.

Additionally, in September 2022, there were 1,379 creditors’ voluntary liquidations (CVLs), 4 per cent higher than in September 2021 and 25 per cent higher than September 2019. Numbers for other types of company insolvencies, such as compulsory liquidations, remained lower than before the coronavirus (COVID-19) pandemic, although there were over six times as many compulsory liquidations in September 2022 compared to September 2021.

David Kelly, head of insolvency and partner at PwC, said underlying data showed the insolvency scales are heavily weighted towards the small businesses with turnover of less than £1 million that form the bedrock of the economy.

“PwC analysis of trends across the early part of the year reveals more than 90 per cent of CVLs and administrations insolvencies were recorded in this part of the corporate market, reflecting the conditions faced by smaller businesses, many of whom are established features of local communities,” he said.

Mr Kelly continued that the number of company insolvencies stubbornly remains at higher levels but drilling down into the numbers, there are some positives and negatives to be aware of as companies continue to weather tough economic conditions.

"[Although] 1,679 businesses entered insolvency last month, this an improvement compared to August 2022, when 1,933 firms collapsed,” Mr Kelly said. 

“However, the number of compulsory liquidations rose by 44 per cent from 142 in August, to 204 in September. Businesses are effectively a microcosm of the current economic climate — the scales of supply and demand are being impacted by inflation, rising import and energy costs, foreign exchange headwinds and interest rate movements. 

“The cost of borrowing is rising at rates not seen in decades, with many corporates and individuals already carrying high levels of debt driven by the Covid-19 pandemic. September’s numbers, despite a 13 per cent drop compared to the previous month, reflects the scale of the pressure businesses are facing.”

Daniel Windaus, operational restructuring partner at PwC, said companies need to act now to preserve cash and get their forecasting in order.

“Businesses find themselves in a quandary — they need to build back vital inventories and shore up the payment pipeline from their customers,” he said.

“Continued disruption in supply chains is leading to shortages of some materials and panic overstocking of others. As cash pressures ramp up, we are already seeing an increase in slow-moving inventory and stock write-offs in the manufacturing and retail sectors. 

“Working capital, the financial float which keeps businesses running before payment comes in for goods and services, needs to be carefully managed. Otherwise increasing amounts of this vital funding needed to meet rising overheads will be burned through.”