Rising costs and supply chain headwinds signal difficult times ahead: EY-Parthenon comments on Q4 2021 corporate insolvency statistics

Samantha Keen, UK Turnaround and Restructuring Strategy Partner at EY-Parthenon, comments on the Q4 2021 company insolvency statistics, published today by the Insolvency Service. The figures show that total company insolvencies increased by 18% in Q4 2021 from Q3 and were 51% higher than in Q4 2020:

“The quarterly and year-on-year increases in total insolvency are unsurprising given the end of most government support measures and difficult trading conditions - especially at the end of 2021.

“There has been a significant rise in Creditors’ Voluntary Liquidations (CVL) from the levels seen in 2020, but a fall in the number of administrations which are now at their lowest level since 2003. The rise in the number of CVLs which accounted for 90% of all company insolvencies in 2021, is, sadly, a reminder that smaller companies are more vulnerable to headwinds. 

“Many small businesses had been insulated by the true impact of the pandemic by government support measures, but the end of furlough in particular left many having to make difficult decisions about their long-term future.  

“The Omicron wave in December also had a significant impact on businesses, particularly those within the hospitality sector, which suffered reduced trade due to cancellations, labour shortages and lower high-street footfall over the critical festive period, which many rely on to see them through the off season.

“Compounding the challenging environment further, has also been supply chain pressures which were acutely felt in the second half of the year. EY’s profit warnings analysis for Q4 2021 found that a record 44% of listed businesses blamed supply chain disruption as the reason for the warning, compared to just 2% between 2009 and 2019.

“It’s looking likely that this rise in CVLs is just the first wave of insolvencies. We expect to see further waves of insolvencies amongst larger businesses as the significant stresses which built up at the end of 2021 continue into 2022, with more pressures on profit margins and consumer disposable incomes. 

“Rising costs, inflation and the removal of the final layers of government support, mean that businesses will need to ensure they have the agility to adapt quickly to conditions in their market to safeguard their long-term survival.”