The most recent Business Distress Index figures reveal that small and medium-sized enterprises (SMEs) throughout the UK are experiencing unparalleled levels of distress due to the nation dealing with a post-Covid cost-of-living crisis.
After analysing fresh data regarding business performance in the last quarter (Q4 2022, October to December), the results highlight the immense challenges the current economic conditions pose for UK businesses.
Unlocking the number of SMEs in distress
In Q4 2022, the total count of SMEs facing significant distress stands at 610,405 – marking a 3.6% rise compared to the corresponding period in the previous year (Q4 2021) and a 0.5% increase from the preceding quarter (Q3 2022).
These figures support the increasing levels of insolvency cases, including liquidations, administrations, and restructuring processes like company voluntary arrangements.
In Q4 2022, there were 5,995 recorded company insolvencies, including 4,891 creditors’ voluntary liquidations (CVLs), 720 compulsory liquidations, 359 administrations, and 25 company voluntary arrangements (CVAs).
In comparison, the number of company insolvencies in Q4 2022 was 7% higher than in Q3 2022 and 30% higher than in Q4 2021.
Many businesses struggled during the pandemic only to feel they’ve gone from bad to worse. The distress figures for businesses are at their highest ever recorded. This is mainly because of the challenges businesses have faced over the past three years.
Instead of seeing these challenges diminish, we’re noticing more creditor actions such as winding up petitions and CCJs being issued. Initially, creditors were patient during the peak of Covid times. This surge in creditor actions is the primary reason for the subsequent increase in corporate insolvencies.
How many business sectors are in distress in the UK? [Analyse The Figure!]
| Sectors In Distress | |||
| Sector | 2021 Q4 | 2022 Q4 | 0% Change |
| Support services | 93041 | 94868 | 2% |
| Property services | 75052 | 86982 | 16% |
| Constructions | 75825 | 77007 | 2% |
| Professional Services | 41125 | 42003 | 2% |
| Telecommunication & IT | 38008 | 41207 | 8% |
| Retail | 35962 | 38068 | 6% |
| Health & Education | 32583 | 31651 | -3% |
| Media | 24773 | 25565 | 3% |
| Manufacturing | 21369 | 21943 | 3% |
| Bars & restaurants | 20846 | 18905 | -9% |
Most sectors have experienced year-on-year increases in business distress. The ten most distressed sectors include Support Services, which involve jobs related to renting and leasing goods, vehicles, and equipment (94,868 – up by 2%), Construction (77,007 – up by 2%), and Retail (38,068 – up by 6%).
The sector experiencing the most significant increase in distress is Property Services (86,892), with a 16% rise over the last 12 months, possibly influenced by mounting interest rates. On a positive note, the Bars & Restaurants sector saw a decrease in distress, with 1,941 fewer businesses experiencing distress, marking a 9% decrease year-on-year.
Analysis of Regional Business Distress in the UK
Looking at the regions, significant distress figures rose across the board, except for two regions – Scotland and the South West – which saw very slight decreases.
London experienced the most significant increase in distress, with a 7% rise – jumping from 159,476 to 170,443 distressed businesses across the capital.
Comparison of Q4 2022 with Post-Covid Statistics
When comparing this quarter’s figures to the same period in 2019 – the quarter before COVID-19 impacted the UK, and therefore not affected by pandemic-related effects – we observe a far more precarious economic situation.
There’s been an 11% increase in critical distress, a 24% rise in significant distress, a 77% increase in CCJs being served, and a 39% rise in registered insolvencies such as liquidation and administration.
Although Covid-19 may not dominate daily conversations anymore, its effects persist in impacting businesses across the UK. Many have been in financial difficulty since the initial lockdown.
The hope was for struggling firms to trade their way out of trouble, but they’ve encountered obstacles at every turn. These include rising interest rates, inflation, surging gas and electric prices, bounce-back loan repayment costs, increased raw material expenses, skill and talent shortages, and often, rising commercial rent costs.
It’s truly a time for caution, and we strongly advise company directors to be vigilant for early warning signs, like reduced cash flow or falling into tax arrears, and to seek early advice whenever feasible.
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Need to talk with a professional?
If your company is facing difficulties with overwhelming debts, tight cash flow, or an uncertain future, you are not alone. We talk to company directors facing similar challenges every day, and we’re here to offer the assistance and advice you require.
I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.