Omicron onslaught: Wave of bankruptcies as insolvencies climb with voluntary liquidations up by 73 per cent
The latest monthly insolvency statistics, published this morning by The Insolvency Service for the month of December 2021, show that the number of registered company insolvencies in England and Wales is 33 per cent higher than the number registered than two years ago, just before the pandemic.
These rises were particularly influenced by the higher number of creditors’ voluntary liquidations (CVLs), which are up by 73 per cent compared to December 2019.
It seems to be a trend that seen over most of 2021 as directors have voluntarily closed businesses that are not fit to survive the current climate.
“The Omicron wave in December has had a significant impact on businesses, especially high-street hospitality businesses, which saw a 40-60 per cent drop in their December trade due to cancellations and reduced footfall,” said Pranav Nadkarni, director in the Advisory Consulting team at Tilney Smith & Williamson, a wealth management and professional services group.
Discussing the dramatic figures with City PM this morning, Nadkarni said the “the situation was aggravated by many firms reporting multiple employees testing Covid positive and needing to self-isolate, along with delays in receiving the promised government grants, which could be quite catastrophic for those businesses that had already been hampered by a weak trading season.”
“This situation is still evolving, and we expect some stabilisation given the high level of immunity in the general population, either through booster jabs or previous infections, leading consumers back to pubs and restaurants over the coming months,” he continued.
Apart from Covid, Nadkarni sees continuing pressures on businesses from cost inflation (raw materials, fuel costs and wages), supply chain disruptions, especially driven by China’s ‘zero-covid’ policies, as well as a tight labour market, partially impacted by Brexit as well.
“SME suppliers that are further down the value chain may struggle in passing cost increases to their customers, which could result in an invisible wave of insolvencies that could be quite disruptive to the overall economy.”
Pranav Nadkarni, Tilney Smith & Williamson
“These macro-trends are impacting and stretching businesses across the economy, however these particularly impact small and medium sized businesses, who do not have the balance sheet to weather these multiple risks at the same time,” he explained.
In terms of sectors, apart from the retail, hospitality and energy businesses that have notably been impacted, Nadkarni also sees a lot of businesses in the construction sector being severely impacted by the rising fuel and material costs along with a lack of skilled workers.
“With several covid relief schemes ending in March 2022, businesses should continue to assess their cash flow positions and develop forecasts and scenario analyses to assess potential impact of these macro-trends on liquidity and solvency,” Nadkarni concluded.