‘Dam bursts’ as insolvencies hit highest number since financial crisis

The "dam has burst" on insolvencies, experts have warned, after the highest number of companies since the financial crisis failed last year.

Interest rates, energy prices and pandemic loans becoming due are pulling the rug from under thousands of firms which are unable to pay their debts, industry leaders say.

Some 22,109 companies became insolvent in 2022 in England and Wales, meaning they are on the brink of going under. This is the highest figure since 2009, government figures show.

Christina Fitzgerald, president of insolvency and restructuring trade body R3, said that after two years of government support suppressing the numbers, “2022 was the year the insolvency dam burst”.  

Many businesses are for the first time experiencing a “trilemma” of supply chain pressures, inflation and high energy prices, according to Samantha Keen of EY-Parthenon and president of the Insolvency Practitioners Association.

She said: “This stress is now deepening and spreading to all sectors of the economy as falling confidence affects investment decisions, contract renewals and access to credit.”

The figures also revealed that the number of firms opting voluntarily to be wound up reached its highest level since records began in 1960.

David Kelly, head of Insolvency in PwC’s Restructuring & Forensics practice, said: “It’s a clear sign that many directors are taking the difficult step to accept they have reached the end of the road.”

The number of insolvencies peaked in the final three months of the year at 5,938, as inflation, rising borrowing costs and the cost of living crisis intensified.

Across most industries, more firms became insolvent than in 2021 – pointing to the multitude of challenges facing businesses.

Olga Galazoula, global head of Restructuring & Special Situations at Ashurst, said: “All of these background conditions affect pretty much everyone. It will be hard to find someone who is not being affected.”

Inga West, restructuring counsel at Ashurst, added that smaller businesses that tend to have fewer resources to withstand shocks are bearing the brunt of the crisis so far. Bigger names are starting to crop up too, however, she said.

She added: “In January alone we've seen Byron, in the retail sector Paperchase is under pressure, Britishvolt went into administration and of course at the weekend we had Flybe. But they're still a small percentage of the overall numbers."