More businesses went bankrupt in England and Wales in March than at any time since monthly records began three years ago.
With companies struggling to pay mounting bills and rising interest rates at a time when the economy is in recession, the insolvency service said the number of corporate bankruptcies jumped to 2,457 last month, up 16% from a year earlier, and up from 1,784 in February.
The rise also represents a 55% jump from pre-pandemic levels in March 2019, when 1,581 companies went bankrupt.
Insolvency experts said the rate of corporate collapse is likely to continue to rise through the year with more companies throwing in the towel amid rising inflation and rising interest rates.
In Cardiff, Louise O’Leary, who owns and runs Frolics café on the outskirts of the city, said rising food and energy costs and staff wages to offset inflation have forced her to rely on credit cards to pay bills. “These high costs wiped out any profit I was making, and meant I needed loans to survive,” she said.
O’Leary has one full-time and seven part-time employees and is increasing prices to bridge the gap between its expenses and income. “But we need to do it slowly because many of our customers are on low incomes,” she said, adding that she was particularly angry that the government had ended the business energy subsidy scheme.
“I can’t understand why small businesses were taken care of during a pandemic, and now we’re being thrown to the dogs. How can you be so appreciated one minute and not appreciated at all the next?”
Government support programs during the Covid-19 pandemic have been credited with preventing the wave of companies falling into bankruptcy. But the latest cuts are expected to send insolvency rates up again.
David Kelly, head of insolvency at accountant PwC, said: “Companies are struggling to secure financing and repay their loans due to higher interest rates and the broader impact of inflation and consumer confidence on sales and cash flow. Company bankruptcies are likely to continue to rise in the short term, making for a challenging spring. “.
The insolvency service said creditor voluntary liquidations, a process that allows directors to close a company they believe has become formally insolvent, was the biggest driver of corporate bankruptcies in March.
Individual bankruptcies also rose sharply in March, although they were down 1% from a year ago.
Breathing space applications — which halt creditors’ actions for 60 days so people in debt can reorganize their finances — rose to a new high in March, after being introduced in May 2021.
Christina Fitzgerald, chair of R3 Insolvency and Commercial Restructuring and Partner at law firm Edwin Coe, said: “Business owners have spent three years trading in the midst of a pandemic and economic instability, and an increasing number are choosing to close their businesses before that option is taken away from them. Troubled proves much.”
Fitzgerald said April will be a turning point for many companies after the government’s plan to ease the energy bill was withdrawn in March. This means that “many companies will face additional cost increases at a time when they cannot afford them,” she said.
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