EY comments on the Insolvency Service Q1 2022 data
Samantha Keen, UK Turnaround and Restructuring Strategy Partner at EY-Parthenon, comments on the Q1 2022 company insolvency statistics, published today by the Insolvency Service. The figures show that total company insolvencies increased 112% from Q1 2021 and are 6% higher than Q4 2021. The number of CVLs increased to the highest quarterly level since the start of the series in 1960:
“The significant increase in insolvencies in the first quarter of the year – over double what we saw in Q1 2021 and above pre-pandemic levels – was expected given the difficult trading conditions facing many businesses.
“The overall rise in insolvencies has continued to be driven by a large increase in Creditors’ Voluntary Liquidations (CVLs) which increased 117% year-on-year (y/y). Administrations have also increased by 42% y/y, a sign of things to come for the year ahead.
“Facing the end of all COVID-19 government support measures, rising costs and supply chain challenges, many small businesses are now having to make tough decisions about their long-term future.
“Companies face a perfect storm of increased commodity and energy prices, supply chain disruption, and a tightening cost of living squeeze. In March, the EY ITEM Club downgraded its 2022 consumer spending growth forecast to 5.1% from the 5.6% expected in early February, with growth expected to fall to just 1.7% in 2023. The result for many businesses is increasing pressure on margins and, unfortunately, many will be unable to adapt.
“Looking ahead, its likely we’ll see further waves of insolvencies among larger businesses as the impact of rising costs affects their bottom line. Businesses in sectors most affected by fluctuations in cost and supply chain pressures and changes in business confidence, such as retail, food producers, and high energy users – such as chemical and paper manufacturers – are likely to be most vulnerable.
“Operating against a backdrop of uncertainty means that businesses need to ensure they plan ahead and if necessary, pivot their operations to respond long-term structural changes in their market.”