By Ben Kerrigan-
Insolvency experts have predicted a surge in business failures, with more significant firms succumbing to financial distress in 2024.
The looming “double whammy” of elevated borrowing costs and heightened pressure on consumer budgets is expected to contribute to the challenging economic landscape, impacting companies across various sectors.
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The Insolvency Service’s recent official figures revealed a concerning trend, indicating that the total number of company failures in the first 11 months of 2023 exceeded the figures reported for the entire year of 2022.
Administrators and restructuring specialists are now expressing their apprehensions about the potential challenges awaiting businesses in the coming year.
PwC’s Head of Insolvency, David Kelly, highlighted that both the construction sector and business services industries experienced nearly a fifth of total insolvencies.
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As a result, he anticipates these sectors to remain among the hardest hit in 2024. Sectors such as hospitality and retail, grappling with challenges like higher energy prices, financial strain on consumers, and increased borrowing costs, have also significantly contributed to the surge in business failures.
According to Kelly, the hospitality sector accounted for around 17% of all insolvencies, while retailers contributed 14%. The distressing list of insolvencies includes well-known brands such as Wilko, Paperchase, Planet Organic, and Le Pain Quotidien, each succumbing to financial difficulties during the challenging economic conditions of 2023.
Rob Hornby, Partner and Managing Director of AlixPartners, emphasized that 2024 is likely to witness a substantial number of company insolvencies, spanning various geographical locations and sectors.
Hornby also expressed concerns about traditionally high-growth areas, such as technology, facing increased turbulence as financing comes under pressure.
Drawing a parallel to the dotcom bubble, Hornby noted that the technology sector, fueled by significant pre-pandemic investment, is now experiencing a drying up of funding.
He cautioned that the consequences of this funding decline could result in adverse impacts on technology companies, especially those with excessive competition in the market.
Despite the anticipated surge in business failures, experts believe that more firms may resort to restructuring plans in 2024 to navigate financial challenges without resorting to full administrations.
Richard Fleming, Managing Director and Head of Restructuring for Europe at Alvarez & Marsal, acknowledged the potential for a similar level of insolvencies compared to 2023 but foresees an increase in larger cases.
Fleming noted that the rising interest rates would intensify pressure on companies burdened with significant debt, leading to potential large-scale failures.
The combination of a slowdown in consumer demand and higher borrowing costs is expected to create a challenging environment for businesses across the UK, putting stress on profit margins and potentially exacerbating the economic downturn.
The resilience and adaptability of companies will be put to the test in the face of these daunting economic challenges.
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