What are the current trends in corporate insolvencies so far in 2022?
01 August 2022
Every month R3 provides commentary on the Insolvency Service’s corporate and personal statistics, but what are the current trends in corporate insolvencies, how do they compare to pre-pandemic levels, and how have different industries across England and Wales been affected so far in 2022?
Insolvencies drop in Q2, but warning issued
In the first quarter of 2022, corporate insolvency levels were steadily rising, though dipping very slightly in February and then peaking to this year’s highest monthly total of 2,120 in March.
These figures reflect the challenging climate businesses were operating in at the beginning of the year, with the Omicron variant delaying some businesses from reopening, rising fuel and energy costs, and the increased cost of living stifling hope of the vital spending boom many were relying on to support their businesses after a difficult 2021.
However, in Q2 we have seen unexpectedly positive figures with the number of corporate insolvencies slowly decreasing, from 1,995 in April, to 1,822 in May and 1,691 in June. This trend lines up with an equally unexpected 0.5% GDP growth in May.
Despite this fall, the number of corporate insolvencies in Q2 2022 is still 29.7% higher than pre-pandemic levels, with 5,508 insolvencies in Q2 2022 compared with 4,248 in Q2 2019.
Delayed, not prevented
Between January and June 2022 there were a total of 10,715 corporate insolvencies across England and Wales, which is 91.8% higher than the same period during the peak of the pandemic in 2021 – and 22.2% higher than the 8,771 corporate insolvencies in the first half of 2019.
Comparing the 2022 statistics to last year when Government support measures such as the Coronavirus Job Retention Scheme (furlough scheme), Bounce Back Loans and Coronavirus Business Interruption Loans were in place to help keep businesses going, it is clear that the wave of insolvencies we expected as a result of the pandemic was pushed back rather than prevented.
The sectoral impact
The Insolvency Service’s monthly insolvency statistics also provide a sectoral breakdown of insolvencies, although this analysis is one month behind the overall figures. It is clear from these statistics that between January and May 2022, the industries that suffered the most as a result of COVID restrictions saw some of the largest levels of corporate insolvency, such as construction (1,779 insolvencies), wholesale and retail trade (1,257) accommodation and food services (1,040) and manufacturing (695).
The general trend across these industries saw numbers steadily rising in Q1 of 2022, peaking at their highest point of the year so far in March, and then following the overall corporate insolvency trend, dropping in April and then again in May. However, contrary to the overall fall in insolvencies, both the manufacturing sector and accommodation and food services saw an increase in insolvencies between April and May.
Of the industries hit hardest by the pandemic, manufacturing saw the largest percentage increase between January and May with a rise of 52.4%, ahead of wholesale and retail trade (20.6%), accommodation and food services (20.4%) and construction (9.7%).
Corporate insolvencies between January and May 2022 in the construction industry are also up 26.5% from before the pandemic during the same period in 2019, followed by the wholesale and retail trade which saw an 18.8% increase, manufacturing at 10.3% and accommodation and food services at 6%.
In April 2022 corporate insolvencies generally decreased, while many businesses considered “non-essential” and which were shut down for much of the pandemic saw a rise in insolvencies, such as the art, entertainment and recreation sector which increased by 26.7% from 30 in March to 38 in April, while other service activities such as hairdressing and beauty treatments, pet care services and physical well-being activities, which saw a 14.7% rise from 109 in March to 125 in April.
Industries that rely heavily on fuel also saw an uptick in insolvency levels in April. Between the beginning of the year and April, the transportation and storage sector experienced a 77.3% increase in insolvencies, with 44 in January, 69 in February, 70 in March and 78 in April and then dropping to 65 in May, with this year’s total figure more than double (up by 129.6%) the one for the same period last year.
Although these figures are not as high as other sectors, the steady increase is concerning and with the inflation now at a forty-year high, we expect these numbers to continue to rise through the second half of the year.
Pandemic support ends as costs rise
In the first half of this year, businesses faced the end of the final set of COVID support measures and uncertain trading conditions brought on by the Omicron variant, as well as restrictions preventing commercial landlords from issuing winding-up petitions against companies for unpaid rent during the pandemic also expiring towards the end of March.
As rent is often one of the biggest expenses for businesses this will have affected those industries that have suffered a loss of footfall due to the pandemic such as retail and personal services. This is further proof that while the Government’s COVID support measures prevented an initial sharp rise in corporate insolvencies, the economic damage caused by the pandemic couldn’t be mitigated away forever.
With inflation continuing to rise, consumer confidence low and ongoing supply issues for many businesses, we do not expect to see the unexpected drop in corporate insolvencies in Q2 to continue through the second half of the year, and we encourage company directors to be prepared for a challenging few months as we head into the autumn months.
R3 has produced a free guide for company directors that explains how to spot signs of financial distress, the options open to them for resolving it, and where to find sources of regulated advice. To download a copy, visit www.backtobusinessuk.com.
R3 members can provide advice on a range of business and personal finance issues. To find an R3 member who can help you, click below.