Yorkshire insolvency expert warns businesses are “sleepwalking into a train crash” under growing financial pressure

Jonathan Amor, insolvency partner at Azets, said many businesses are “sleepwalking into a train crash” under growing financial pressure.

Latest statistics released by The Insolvency Service show the annual rate of company insolvencies in England & Wales is now the highest it has been in eight years.

Mr Amor said: “The current economic environment, characterised by rising prices and tighter financial conditions, is impacting companies’ ability to service debt.

“Economists believe it is a case of ‘when’ not ‘if’ the UK eventually falls into recession.

"It is highly likely that the cost of business will increase, especially for companies that have taken out non-fixed rate loans.

“Many businesses relied on loans to cope throughout the pandemic, and consecutive interest rate hikes have come at a critical time for many who are already struggling to stay afloat.

In the 12 months to August, a total of 20,512 insolvencies were registered with the Insolvency Service.

The figure is 16 per cent more than any 12-month period since 2019 and 26 per cent higher than any calendar year between 2014-2018.

While number of company insolvencies reported by the Insolvency Service for August was down 9 per cent from the peak in March 2022, analysis by R3, the trade association for UK insolvency and restructuring professionals, shows the upward trend in the 12 monthly rolling numbers.

Starting in April 2021, this upward trend has continued to rise at the same steady pace, and is now 72 per cent higher than a year ago.

Mr Amor predicts this trend will continue, and is urging business owners to be proactive, with the true impact of the global economic crisis yet to be felt.

He noted that businesses have significantly more options available if they are alert to danger and consult early.

“There are several options available that will reduce risks and ensure a business is ready to take advantage of an upturn – if advice is sought early enough,” he said.

“Securing funding from a lender that invests in distressed businesses in exchange for equity would enable the preservation of the business and retention by management of some equity, while avoiding the crystallisation of any personal guarantees they may have entered into.

“At first blush, this might seem unpalatable to an owner-managed business,” he added.

"But the reality is that a smaller percentage of something is better than 100% of nothing.

“Where management would prefer to retain control of the business, they could apply for a moratorium under the Corporate Insolvency and Governance Act 2020, put together a restructuring plan or propose a company voluntary arrangement, all of which are processes designed to help businesses navigate disruption and emerge stronger.”

The warning comes as figures from Interpath Advisory revealed that the number of companies filing for administration across Yorkshire and the North East has risen by a third in the third quarter of 2022.

Interpath Advisory’s figures also show that August of this year saw the higest number of administrations accross the UK since March 2020.

Azets is the UK’s largest regional accounting firm and specialist business advisor to SMEs.

It is part of Azets Group, an SME-focused international accounting, tax, audit, advisory and business services group, with over 7,000 people, including more than 600 Partners, in the UK and Europe.

The firm supports 120,000 clients across its network of 165 offices in the UK, Denmark, Estonia, Finland, Norway, Sweden, and Romania.