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Business failures hit 14-year high as rates rise Economic ‘perfect storm’ sees insolvencies soar https://www.thetimes.co.uk/article/business-failures-hit-14-year-high-as-rates-rise-xsb67pn6m A “perfect storm” of headwinds has driven company insolvencies to their highest levels since the aftermath of the financial crisis, underscoring the effects that high interest rates and soaring prices have had on the economy. The second and third quarters of this year saw the highest and second-highest volume of insolvencies since 2009, data from the Insolvency Service showed. Some 6,319 and 6,208 companies tipped into insolvency in the second and third quarters respectively. Higher interest rates, elevated debt levels and downbeat demand as the cost of living crisis eroded real incomes combined to strain company finances. A moratorium on insolvency measures during the pandemic kept proceedings low, but these protections have now ended, exposing companies with weak balance sheets to creditor action. Christina Fitzgerald, former president of R3, the UK’s insolvency and restructuring trade body, described the dynamic as a “perfect storm of economic issues”. Mounting company failures risk worsening Britain’s poor economic growth rate and pushing unemployment higher. According to Office for National Statistics figures, the economy expanded 0.3 per cent in the latest quarter. Growth is projected by the International Monetary Fund to expand 0.5 per cent and 0.6 per cent this year and next respectively. Olga Galazoula, partner and global head of restructuring at Ashurst, the law firm, said: “It is difficult to look at these [insolvency] figures and not see a risk of a recession looming.” So far this year Britain has avoided a recession due to government support and households using savings amassed during lockdown to finance spending. However, economists have warned that growth will sour as the effects of the Bank of England’s rate rises sweep through the country at a quicker pace over the next year. Simon Edel, UK turnaround and restructuring strategy partner at EY-Parthenon, said: “Since the pandemic, insolvency activity had been heavily focused among smaller companies, but we are now seeing increased activity in the mid-market as macro-economic and financing stresses build.” An underwhelming festive trading period, in which leisure, retail and hospitality firms typically generate most of their income, could push insolvencies even higher.

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