Whilst we would love to say 2023 is the year everything returns to ‘normal’, industry leader PwC predicts another year of economic reckoning. With the cost of living and running a business still set to climb.
Economic uncertainty provides a hostile landscape for businesses, filled with challenges for some and opportunities for others. Whatever side your business finds itself on, it’s not the time to bury our heads in the sand.
Below, we cover our business trends for 2023, based on what we’ve seen over the past 6 months as an insolvency practice. Read our predictions and join the conversation on LinkedIn.
Business Trend 1: a rise in liquidations
In December 2022, the total number of company liquidations was 32% higher than in the same month of the previous year, and 76% higher than December 2019. We predict this year-on-year increase will continue.
In general, periods of economic downturn see the number of liquidations rise. So in 2023, with many external factors posing a risk to business profitability (soaring energy prices, the cost of living crisis and the war in Ukraine to name a few), we have no doubt that both creditors’ voluntary liquidations (CVLs) and compulsory liquidations will be higher than the 2022 figures.
The economy will effectively whittle down businesses who may have been limping along over the past few years. This leaves their competitors and newcomers to increase market share. And for those who face liquidation of an unprofitable business, it may be the release needed to pursue other avenues in their career. Whilst liquidation is ultimately a sad ending that no one plans for, it can unburden directors who have chosen to take salary cuts to keep the company afloat.
The rise of liquidations in 2022 also highlighted the issues posed by bounce back loans claimed during Covid. This brings us onto Business Trend 2.
Business Trend 2: issues with bounce back loans
As a licenced insolvency practice ourselves, practically every liquidation case in recent months has involved the use of at least one form of Covid government support scheme, especially bounce back loans (BBLs). We don’t expect this scenario to disappear overnight.
The government was reported to have lent £80bn of loans to UK businesses during the pandemic. We’re now seeing the repercussions play out. The issues do not lie with the bounce back loans themselves, but how they have been applied for and subsequently used by the company.
For many businesses we now see failing, Covid loans were claimed even when the company was ineligible. Whilst businesses could borrow up to 25% of their turnover, there were some that applied for more than 100% of their turnover, at the time, with falsified company information. In addition, some companies applied for multiple loans. Loans which they were then unable to pay back after the 12 months of 0% interest came to an end.
In addition, it was expressly stated that applying for BBLs would be legitimate even when their only purpose was to support personal income, as this would be an economic benefit to the business. However, this did not include using loans for personal purposes, such as buying personal properties. When the misappropriation of funds – such as buying new director’s cars, improving home offices, repaying connected company or director’s loan debts and refinancing existing loans – is found during the liquidation process, it can lead to director disqualification and a requirement to repay some or all of the misappropriated funds.
Disqualifications are also something we expect to increase as the Insolvency Service disqualification unit continues to take a keen interest in more companies that have taken bounce back loans and used them inappropriately.
Business Trend 3: more D&I in insolvency
Like many areas of business, the insolvency and restructuring industry has a long way to go when it comes to incorporating diversity and inclusion from the get-go. So, as an important sector of the finance world, the insolvency industry is making some headway to remedy this.
Here at Mercury Corporate Recovery Solutions, our director Francesca Tackie is part of the steering group for diversity and inclusion in insolvency. The group focused efforts into four key areas in 2022:
- entry into the profession
- progression to associate level, and to partner level
- taking insolvency qualifications, and
- becoming a license-holder
For 2023, we predict even more progress as organisations such as R3, The Insolvency Service and the IPA are ensuring that support for diverse and inclusive direction continues to build across the industry. Looking at recruitment, outreach to universities and schools, identifying barriers to entry and progression within firms, encouraging ethnic diversity within teams and promoting the benefits of a diverse workforce, are all ongoing works that we’re proud to be a part of.
2023 Business Trends summary: the insolvency edit
As an insolvency practice, we do not expect the rise in the number of liquidation cases to slow down anytime soon, especially those involving bounce back loans. And though liquidation can be a sad ending for those involved, it does offer opportunities for others in the business landscape. This is a story we often see play out in times of recession.
For the insolvency industry itself, we’re positive it’s moving in the right direction and building an inclusive space for all who wish to be a part of it.
Whether you’re a business or accountant, get in touch with us today and see how we can help you in 2023.