Soaring Energy Costs Could Push More Companies towards Liquidation

“Sky-rocketing” energy costs could soon push a significant number of small businesses across the UK towards liquidation, according to recent research.

Evidence compiled on behalf of the Federation of Small Businesses (FSB) suggests that 24 per cent of British companies will need to either close, downsize or radically change their business models if their energy bills are allowed to increase dramatically from April next year.

The government recently introduced an Energy Bill Relief Scheme that should help restrain energy price rises for the next few months but that initiative is scheduled to end on March 31st.

Among a large number of small businesses, there is real concern that energy bills will spike again from April 2023 and seriously undermine their financial viability.

Almost half (44 per cent) of firms are reportedly planning to increase their prices to cope with what is being referred to as an “energy bill crisis” but many are expecting to be forced towards liquidation by bills they cannot afford.

Companies operating within the hospitality, accommodation and food sector, as well as retailers and wholesalers, are among those most fearful of the potential impacts of further energy bill increases.

According to the FSB, most small businesses have seen their energy bills increase over the past year and almost one in five have seen those bills treble within that same timeframe.

Rates of corporate insolvency and liquidation have been increasing in 2022, with Creditor Voluntary Liquidation (CVL) cases across England and Wales having risen particularly sharply.

Rising costs and increasing energy bills have been cited as significant contributors to the challenges most company directors have been hindered by in recent quarters.

Most corporate insolvency experts now expect liquidation rates to increase further heading into 2023, even if the government decides to extend its energy bill relief scheme policies.

“It seems inevitable that numbers will increase in the coming months as the state of the economy, increased costs, and people’s reluctance to spend money deals a further blow to those businesses that have struggled since the beginning of the pandemic,” said Christina Fitzgerald from the insolvency and restructuring trade body R3 recently.

Current circumstances represent a “perfect storm,” according to Ms Fitzgerald, “of directors running out of road and creditors being able to pursue unpaid debts again after the temporary legislation designed to deter this ended”.