Rates of business insolvency across the UK are likely to increase during the final three months of 2021, according to the Bank of England.
The Bank has suggested that the removal of important protections for companies in debt will contribute to a notable rise in insolvency rates in the fourth quarter of the year.
Corporate insolvency rates have been at historically low levels in recent quarters, largely because of financial support being provided to struggling businesses by the government and an official ban on winding up petitions during the first 18 months of the Covid pandemic.
However, with direct financial support for businesses having been significantly scaled back and the ban on winding up petitions having been lifted from October, expectations are that corporate insolvencies will become much more commonplace in the coming months.
In its assessment of dynamics at play with the UK economy recently, the Bank of England noted that increases in debt levels among businesses have generally been concentrated among SMEs rather than larger companies.
The Bank has also said that a lot of SMEs that took on debt during the pandemic would not have been able to borrow as much money as they did if it weren’t for their loans effectively being guaranteed by government.
Overall, the assessment of leading experts is that the prospect of insolvency will be looming large for a lot of SMEs heading towards the end of the year.
“The increase in debt - though moderate in aggregate - has likely led to increases in the number and scale of more vulnerable businesses,” noted the Bank of England’s latest policy summary.
“As the economy recovers and government support, including restrictions on winding up orders, falls away, business insolvencies are expected to increase from historically low levels.”
The latest figures released by the Insolvency Service indicated that cases of corporate insolvency in England and Wales were already on the rise in August of this year.
Creditors’ Voluntary Liquidations (CVLs) increased by as much 115 per cent between August 2020 and the same month of this year, with CVLs cited as being the main driver of an increase in overall corporate insolvency numbers.
