A leading corporate law specialist with Bishop & Sewell LLP has urged businesses facing financial difficulties to seek professional legal advice early as rising costs, higher energy bills and the looming threat of recession push more companies towards the brink of collapse.
Last week data released by insolvency firm Begbies Traynor provided a stark warning that the number of companies in the UK facing collapse has jumped by more than a third, as a range of factors put increasing financial strain on businesses.
Andrew Kavanagh, Partner in the Corporate & Commercial team at London law firm Bishop & Sewell LLP, said: “Regrettably there are clear signs that companies across the UK are continuing to face unrelenting pressures which are increasing the likelihood of financial distress, at a time when many businesses are also facing the cost of repaying government loans originally provided to support them through the Covid-19 pandemic.
“A cocktail of critical factors, including rising materials costs, higher energy bills and concerns over the level of wages, are being served to businesses and consumers in equal measures at the same time, leaving the confidence in the UK at a very low point.
“This has been reflected in the recent International Monetary Fund (IMF) global growth forecast for 2023 which predicts that while there could be improvement for the global economy, the UK is set to contract by 0.6% across the year.
“As businesses look to bake in mitigation (or optimistic) factors to their own forecasts, they are also facing the reality of households reining in spending as a result of the cost-of-living crisis, and from increasing interest rates, which make loans and refinancing more expensive.”
2022 saw record numbers of insolvencies, with more than 5,500 company insolvencies in England and Wales in Q3 2022 alone, an increase of 40% from the same quarter in the previous year. Over 600,000 UK businesses are currently rated as being in “significant financial distress”, suggesting the number of insolvencies could rise as companies continue to face tough trading conditions and a potential UK recession.
Andrew continued: “Businesses have a number of options when they are facing financial difficulty which can help them to stay afloat, including raising new finance, reaching an informal agreement with creditors to pay debts on different terms (e.g. by instalments), entering into a formal company voluntary agreement (CVA), or engaging an insolvency practitioner to help avoid, or guide them into, administration.
“It is vital that businesses facing financial distress seek advice at an early stage from a qualified solicitor, or other professional, who can outline the available options and advise on the most appropriate course of action.
“Taking action is not an admission of defeat or giving up, it is absolutely the opposite. We have seen countless examples of early action giving businesses the time and breathing space to take steps to avoid closure, or limit liabilities and protect employees in the event of insolvency.”
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This note is for guidance only. The above is correct as at 31 January 2023. The information above may be subject to change.
The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.