Samantha Keen, UK Turnaround and Restructuring Strategy Partner at EY-Parthenon:
“Quarterly company insolvencies reached over 6,300 for the first time since 2009 in Q2 as many businesses struggled to contend with a sustained mix of pressures.
“Although company insolvencies have been steadily increasing over the last 18 months, largely driven by Creditors’ Voluntary Liquidations (CVLs), in Q2 there was a significant uplift in the number of compulsory liquidations which rose 67% year-on-year.
“The current low-growth, high-inflation and relatively high interest rate environment has meant many businesses have faced building pressure over the last 12 months which is now translating into distress.
“The increasing cost of refinancing options available to companies in this higher interest rate environment are now having a direct impact on profitability. According to EY-Parthenon’s latest Profit Warnings report found that nearly one-in-five UK-listed companies issued a profit warning in the last 12 months, with 20% citing tighter credit conditions – the highest level since 2008.
“As we’ve seen with previous economic downturns, an increase in restructuring activity traditionally comes after a peak in profit warnings with many businesses looking to implement restructuring plans as a rescue solution rather than insolvency. In Q2 there was a 34% year-on-year rise in Administrations and there’s likely to be a further uplift in restructuring in H2 2023 as businesses look at options to safeguard their long-term survival.
“The tighter lending environment will have an ongoing impact on profitability so it’s imperative that businesses continue to build solid operational and financial foundations as well as conduct robust forecasting to ensure they are fully equipped to adapt to changing conditions in their market.”