Post-Pandemic Surge in Company Insolvencies

Recent UK government figures have revealed a concerning trend in England and Wales, as businesses grapple with the economic fallout of the COVID-19 pandemic. The second quarter of 2023 witnessed the highest number of company insolvencies since 2009, reflecting the challenges businesses face post-pandemic in repaying COVID-19 loans against a tough economic backdrop. Rising interest rates, inflation, and mounting wage expectations have compounded the impact of the pandemic debt, leading to a rise in insolvency declarations.

The surge in company insolvencies paints a grim picture of the economic struggles businesses face as they try to recover from the COVID-19 pandemic. Rising interest rates, inflation, and mounting debt have pushed many companies to the brink, with the hospitality sector bearing a particularly heavy burden. While experts predict a possible decline in insolvencies by the year’s end, the situation remains uncertain. Businesses are urged to seek financial advice promptly to navigate the challenging economic climate and ensure their survival in these trying times.

Need a second opinion on your insolvency litigation? Our specialist solicitors & barristers can help by assessing your case prospects and whether a winding-up petition is the right tool. We have highly experienced dual-qualified lawyers, so if our view is your case has limited merit or high risk we can advise you of the best strategy in our first meeting. Give us a call on 02071830529 for expert winding-up law advice.

Highest Quarterly Insolvency Numbers Since 2009

During June 2023, the Insolvency Service reported 2,163 company insolvencies in England and Wales, marking a significant 27% increase from the previous year. While this figure was lower than the record 2,553 insolvencies reported in May 2023, the overall second quarter witnessed a staggering 6,403 insolvencies. If confirmed, this will be the highest non-seasonally-adjusted calendar-quarter total since the first quarter of 2009.

Surge in Insolvencies

Experts attribute the surge in insolvencies to a challenging combination of rising interest rates, sticky inflation, and higher wage expectations, exacerbating the burden of COVID-19 debt on UK businesses. The government provided substantial financial aid during the pandemic, amounting to £80 billion, which temporarily eased debt proceedings. However, as of April 2022, these proceedings have fully resumed, further impacting struggling businesses.

Struggles for “Zombie Companies”

As the economic landscape shifts, the recent insolvency spike raises questions about the survival of “zombie companies.” These businesses, heavily indebted or barely profitable, have relied on cheap bank loans for sustenance. With rising interest rates and energy costs, these companies are facing dire financial pressures and may not survive. The potential demise of such firms could create opportunities for more profitable ventures, leading to a potential boost in UK productivity. HMRC see themselves as undertaking an important role in seeking the winding-up of non-productive companies and often issue HMRC winding-up petitions.

Expert Insights and Industry Reactions

Restructuring and recovery experts emphasise the importance of businesses seeking advice before financial pressures become insurmountable. Many insolvencies are attributed to “Creditors’ Voluntary Liquidations,” or CVAs, where directors voluntarily wind up their companies. Rising costs, cautious consumer spending, and higher wages pose significant challenges, especially for companies barely managing to stay afloat. The rising interest rates might lead some firms to lose access to crucial survival funding, further worsening the situation.

Vulnerability in the Hospitality Sector

The surge in company insolvencies has hit the hospitality sector particularly hard. With soaring inflation and increased interest rates, businesses in this industry, including bars, pubs, restaurants, hotels, theme parks, and tourism, face significant vulnerability. The hospitality sector accounts for 143,000 businesses and employs 1.8 million people. Many establishments may struggle to make profits following the pandemic’s challenging years.

Specialist Legal Advice on Winding-up Petitions

We specialise in winding-up petitions and can help you navigate the complexities of such legal proceedings, especially where there is a HMRC Tax Dispute (an area we also specialise in). Don’t hesitate to reach out to us for professional advice and support. Remember, timely legal intervention can make all the difference in safeguarding your interests and ensuring a favourable resolution. Contact us today to schedule a consultation and protect your business from the consequences of winding-up petitions issued by HMRC.

Why Choose Our Firm for Winding-Up Petitions

Expertise: Our legal team has extensive experience in handling winding-up petitions, enabling us to provide effective advice and representation.

• Tailored Approach: We understand that each client’s situation is unique. We provide personalised guidance and strategies tailored to your specific circumstances.
• Proactive Defence: We take a proactive approach to defending against winding-up petitions, ensuring that all legal avenues are explored and leveraged in your favor.
• Results-Oriented: Our ultimate goal is to achieve the best possible outcome for our clients, whether it involves successfully issuing a petition or effectively opposing one.

Need Help Opposing a Winding Up Petition?

Our specialist winding-up petition lawyers are experts in defending winding-up petitions. We can advise you as to the specific merits and demerits of your case and can assist you in opposing winding up petitions and negotiating with creditors. If your company has been issued a winding-up petition or statutory demand, you may be able to challenge that petition and should seek legal advice. Companies are entitled to appear at the petition hearing by way of a Director to oppose the making of a winding-up order however it is usual to instruct solicitors and barristers to appear on their behalf at the hearing.

To oppose a winding-up petition, a Company will usually also need to file a witness statement in opposition with the Court within five business days before the date when the petition will be heard by the Court (rule 7.16 of the Insolvency (England and Wales) Rules 2016). A copy of that witness statement will need to be provided to the petitioning creditor at least five business days before the hearing. We are experts in successfully dealing with winding-up petition cases.