Azets: New financial pressures are driving business failures

Azets: New financial pressures are driving business failures

Chris Tate, restructuring partner 

Chris Tate, a restructuring and recovery expert at Azets, has said that new financial pressures are continuing to drive business failures across the UK, with the hospitality sector most vulnerable to stubbornly high inflation – causing a “perfect storm to brew”.

The warning comes as new monthly insolvency statistics for June 2023 reveal there were 2,163 company insolvencies, 27% higher than in the same month in the previous year (1,698 in June 2022) and higher than pre-pandemic numbers.

There were 260 compulsory liquidations in June 2023, 77% higher than in June 2022, and 1,759 Creditors’ Voluntary Liquidations (CVLs), 21% higher than in June 2022. Administrations and Company Voluntary Arrangements (CVAs) were also higher than in June 2022.

Mr Tate said: “The cost of living crisis isn’t going to get any better soon. High inflation appears to be baked in, with the cost of supplies unlikely to be lowering in the near future and the continued rise of interest rates compounding cash-flow pressures as debt repayments increase substantially compared to previous years.

“For consumers, the impact is bound to hit hard on discretionary spending. There is also the concern that the highest tax burden in two generations is leaving even less for people to spend after all the bills have been met. These economic conditions, unwelcome and unsettling, are causing a perfect storm to brew for businesses. The hospitality sector, including bars, pubs, restaurants, hotels, theme parks and tourism, is particularly vulnerable.

According to government figures, there are 143,000 businesses in the hospitality sector, employing 1.8 million people. Many will now find themselves struggling to make any sort of profit following the tough pandemic years.

Mr Tate added: “To drill down further, we are already seeing this in the fish and chip industry – the cost of packaging, fish, potatoes, labour, higher VAT bills and energy, with less spending money from hard-pressed customers, are hurting.

“We’ve already had a related enquiry which shows this particular business model is, frankly, broken. Unless the government take action akin to the temporary VAT reduction during the pandemic, soon, many more similar businesses will unfortunately hit the wall.”

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