Samantha Keen, UK Turnaround and Restructuring Strategy Partner at EY-Parthenon and President of the Insolvency Practitioners Association (IPA) comments:
“The year-on-year increase in insolvencies in Q3 2022 is unsurprising given the challenging trading conditions and market volatility facing many businesses.
“This rise in insolvencies has, once again, largely been due to a significant year-on-year increase in the number of Creditors’ Voluntary Liquidations (CVLs) which accounted for 86% of all insolvencies in Q3 – a trend we have seen continue since the end of all COVID-19 government support measures earlier this year. We are now also seeing numbers of compulsory liquidations increase with numbers four times higher than they were at the same time last year.
“As companies navigate multiple headwinds including inflation, rising costs and labour challenges, many are now also dealing with falling consumer demand. This is set to worsen with the UK economy likely to be in recession until the middle of 2023, according to the latest EY ITEM Club Autumn Forecast.
“These headwinds are now having a direct impact on profitability. EY-Parthenon’s Profit Warnings report, released earlier this week, found that warnings from UK-listed companies increased 69% year-on-year in Q3 2022 with over half of warnings (57%) linked to rising costs. Consumer-facing companies have been most affected, with warnings rising almost three-fold in Q3 2022 year-on-year.
“The number of companies who have issued their third consecutive profit warning in the last year now stands at 28, compared to 18 at the end of Q2 2022. On average, one-in-five companies delist within a year of their third warning, most due to insolvency.
“As many businesses gear up for their busiest quarter in the lead up to Christmas, it is crucial they use this period of high demand to build operational and financial resilience to face more challenging times ahead.”