You can’t help but notice that the economy is not exactly rosy. Inflation is rising rapidly, and costs are going through the roof. So why are we not hearing about huge numbers of insolvency cases?
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If the economy is so bad, why aren’t we seeing a flood of insolvencies?Posted: Jul 11, 2022

What happened to the insolvency crisis?

Back in what now feels like aeons ago during 2021, there were rumblings and dire warnings of businesses failing come the end of Covid restrictions. A lot has happened since then and much of it was totally unforeseen. The expected problem with unemployment rising didn’t occur, in fact, the opposite happened and there seems to be opportunities everywhere. As we came out of covid restrictions the economy seemed to bounce back with unexpected vigour. Things seemed fine and all those dire warnings felt like nothing more than doom-mongering. In truth, I will be the first to hold up my hands and say the resilience of the economy took me as much by surprise as it did everyone else.

 

What is happening right now?

As much as I hate to go into the long summer days with a less than sunny forecast, I am afraid the bad times we expected are now coming. Although there isn’t much noise about the insolvency crisis at the moment, that doesn’t mean it isn’t there. When you put things into context you can see why we are expecting a lot of enquiries and financial emergencies towards the end of the 3rd quarter of the year.

I could list many other factors such as industries hit by staff shortages, prohibitive costs of overseas shipping, the weak pound causing supply issues, the rising cost of borrowing, reducing retail markets, strike actions and many more, but I think there is enough there see the flood coming.

 

So, what happened to the insolvency crisis that we all expected to arrive?

Well, unfortunately, the answer to that question is ‘nothing happened to it’, it is happening now we just haven’t fully seen it yet. The summer is rather a slow time for business and the economy in general. However, all these financial issues are not going to go away and come to the end of Q3 they will probably hit hard.

One final thought on why we are not seeing more about the expected crisis in business. Partly it could be that we are literally not seeing it because there is so much going on in the world. International emergencies, shenanigans in Downing Street and global warming are justifiably taking up space in the news. However, the signs are there if you look for them. According to official statistics in May 2022 company insolvencies were 79% higher than in May 2021. This is unremarkable perhaps because during lockdown the various schemes and relief actions were keeping businesses trading. It’s to be expected that there would be a huge increase this year as normality returned. However, as always, context really matters here. What is important is to compare it with a ‘normal’ year. A comparison to the same period pre-pandemic shows a steep increase of 34% in company liquidations. Normality it seems has not returned and I think we need to take that as a very bright warning signal indeed.

If you are in a position where you see your business heading into a severe financial situation and potential insolvency after the summer, call us. You can also make an appointment on our calendar on our creditor pressure information page here and book a free chat.

If the worst is going to happen, then you are better to get ahead of that flood and we are here to help.

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