RSM UK Restructuring says high energy prices putting companies at risk of insolvency

10 Oct 2022
The total number of company insolvencies in England and Wales in Q2 of 2022 reached its highest level since Q3 of 2009 according to data from the Office of National Statistics. The rise has been driven by Creditors’ Voluntary Liquidations (CVLs).

The ONS data suggests the rapid increase in energy prices is a very real risk to many businesses despite the recent government announcement to freeze energy prices for six months. It found more than 1 in 10 businesses reported a moderate-to-severe risk of insolvency in August 2022 and that 1 in 5 businesses (22 per cent) said energy prices were their main concern - an increase from 15 per cent in late February 2022. The figure was even higher – at 30 per cent for smaller businesses with 10 to 49 employees.

Commenting on the latest ONS figures, Gareth Harris, partner at RSM UK Restructuring Advisory, said: ‘This paints a very clear picture of the immense pressures facing UK businesses and the tightrope they are walking. It is not just smaller businesses facing insolvency. Larger companies are having to use their reserves and cash balances they have built up over the last two years in response to the growing economic pressures.’

Company insolvencies in the food and beverage services activities have risen since the start of 2021 to 567 in Q1 of 2022 – its highest level since data became available in Q1 of 2012 from the Insolvency Service.

‘Of particular concern appears to be in the impact in the whole food supply chain, where high energy consuming agriculture and food producers are under significant pressure due to poor harvests, rising feed and feedstock prices, and fertilizer costs.  This is feeding up the supply chain to manufacturers who, whilst trying to pass on price increases to supermarkets are also under pressure to keep prices low to consumers.  Those manufacturers in the middle are caught in the centre of an almost perfect storm and these higher energy prices and interest rate rises could be a catalyst for more insolvencies.

‘Businesses across a wide range of sectors are facing some difficult choices in the weeks and months ahead.  It is important for businesses to take action sooner rather than later and look at options to “future proof” their businesses and hopefully avoid insolvency.’