ONS statistics for April show a fall in the number of companies being declared insolvent
However, Alex Hutton-Mills, Managing Director, highlights why we must remain cautious as the full impact of rate rises are still yet to come through.
“While today’s ONS statistics for April show a reassuring fall in the number of companies being declared insolvent, down 15% compared to this time last year and down just over 30% from March this year, we must nonetheless remain cautious as one month does not make a trend.
“Indeed, pressure remains on corporate cash flows as compulsory liquidations remained worryingly high, up 95% when compared to April 2022. While creditors’ petitions for bankruptcies have increased 18% in the same period. The number of debt relief orders has also continued to grow, up by 24%. This calls into question the capacity of those companies to support the risks associated with their sponsored DB schemes on their balance sheets along with their other debt obligations. It is also worth noting that the number of administrations has gone up 8% in the last 12 months. This suggests that pressure is now starting to increase on larger companies as liquidations tend to be more prevalent at the lower end of the scale.
“It is vital that the trustees of DB pension schemes remain abreast of the financial situations of their sponsoring companies. This will enable them to act in the best interests of the members they represent. While we are cautiously optimistic about the fact that insolvencies do appear to be falling in the short term, continued interest rate rises as the base rate now hits 4.5%, and inflation stubbornly remaining in double digits, means directors of sponsoring companies must consider the best ways in which to time any refinancing necessary to maintain cash flow requirements.
“Companies must continue to work closely with their scheme trustees to ensure they meet their pension obligations. Whilst keeping in mind the longer term impacts on the business and its current employees who are undoubtedly also feeling the pinch.”
