MANY businesses might come to regret not being “fully alive” now to the risks of insolvency, an expert has said.

A rise in corporate insolvencies gathered pace at the end of 2021.

They stood 11 per cent higher than pre-pandemic levels in November but almost 33 per cent higher in December than in the same month of 2019.

For creditors’ voluntary liquidations – where an insolvent business chooses to wind itself up – the curve was even steeper, with cases up 43 per cent in November and 73 per cent in December compared with pre-pandemic levels.

Mike Pavitt, who leads the corporate restructuring and insolvency team at Southampton law firm Paris Smith, said government support had for a long time suppressed the “true” number of business and personal insolvencies but the scale was now becoming clearer.

“One of the most significant causes of business distress is bad debt – and with remaining restrictions on creditor action expected to fall away by March 31, there are signs that court lists for winding up petitions are starting to fill again,” he said.

“The moment that a winding up petition is issued, the company against whom that petition exists is no longer free to pay its debts, even assuming it has the cash to do so.

“This often causes what has been termed the insolvency domino effect, which is a very real phenomenon, particularly when supply chains are already stretched and in some of our most challenging sectors, such as construction, arts and entertainment, recreation and hospitality.

“In the months and years to come, this period will be seen as one where businesses and individuals might regret not having been fully alive to the risks of insolvency.”

He urged businesses suffering "financial discomfort" to: 

  • Talk openly about the issue with the management team, sharing relevant data and identifying any pinch points.
  • Investigate all options well in advance of reaching those pinch points, including consulting regulated advisors. “Reaching out to these advisors is not an admission of defeat,” he said.
  • Make decisions based on the best available information and advice – and record in writing the reasons for those decisions. This includes approaches to landlords, investors and other creditors to restructure debt or raise equity.