The British newspaper, “The Guardian,” reported a sharp rise in the number of bankrupt companies in England and Wales. The jump, amounting to almost 20%, was observed in August compared to the same month the previous year. Factors such as the rising interest rates and a dip in sales have adversely affected struggling businesses.
The Insolvency Service stated that 2,308 companies collapsed in August, representing a 19% increase from August 2022 and surpassing pre-pandemic levels. The construction sector, retailers, and manufacturing firms were the most impacted industries.
Wilko, a retail giant that entered a crisis state on August 10th and subsequently collapsed—resulting in a loss of 12,500 jobs and the shuttering of 400 stores—is expected to announce more bankruptcy incidents for the remainder of the year.
One of the primary driving factors behind this trend was the HMRC’s (Her Majesty’s Revenue and Customs) approach, which saw an uptick in the number of applications for unpaid tax liquidations in recent months.
Detailed figures revealed that most of the surge was due to a rise in Creditors’ Voluntary Liquidations (CVLs), where a company is voluntarily liquidated either by its directors or shareholders. There were 1,880 such liquidations last month, marking a 13% increase from August 2022.
In August, HMRC and other creditors secured termination orders for 221 compulsory liquidations, 45% higher than August 2022 figures.
Insolvency practitioners noted that the UK had evaded the anticipated corporate collapse in the months following the initial outbreak of the COVID-19 pandemic in 2020.
However, it is now grappling with the ramifications of stricter, more expensive borrowing against financial resources of companies, further endangered due to the escalating cost of living crisis.
The economic repercussions of the COVID-19 pandemic continue to ripple through various sectors in the UK. Initial government schemes and financial interventions had offered companies a brief respite.
However, as these aids diminish and with the added pressure of rising interest rates, many businesses, especially those already in precarious positions, face significant challenges. The current rise in bankruptcies is a testament to these economic strains, with the prospect of more stringent borrowing and increased living costs further amplifying concerns.
