If 2020 was the year businesses were turned on their head by COVID-19, 2021 was the year in which like many aspects of our lives, a new world began to emerge. As we enter into 2022, challenges are beginning to mount, and support from government is lacking, creating increasing likelihood of insolvencies and acquisition opportunities as a result. In this way, insolvencies could simply be returning to some kind of ‘new normal’.

Challenges mount for businesses

The once-in-a-lifetime nature of the COVID-19 recession produced a unique once-in-a-lifetime response from policy makers, who slashed interest rates and unveiled a series of measures aimed to support businesses. Support came in the form of policies such as freezing winding up petitions for over a year, easing the financial pressure on businesses struggling to repay debts.

Now that such measures are no longer in place, the market is returning to its original way of handling such matters, and this is best observed in insolvency statistics. We already know that late 2021 was a busy period for insolvency proceedings. According to the Insolvency Service, insolvencies were 88 per cent higher in November 2021 as compared to November 2020. Not only are insolvencies rebounding sharply off a low base, but they are now higher than they were in November 2019 by 11 per cent. This means insolvencies are now at a volume above even pre-COVID levels.

One story which has been pushing many businesses to the brink in recent months is the ongoing energy price spike the UK is experiencing. Smaller providers which offered lower prices found themselves stung by soaring energy prices while constrained by the price cap set by the government. As a result, the energy market has been experiencing especial weakness which might persist, so long as supply chains remain disrupted and geopolitical tensions run high for longer.

More insolvencies in the pipeline

The rise in insolvencies is expected to extend into 2022, or so seems to be the consensus in the business community. Debt collection firm Atradius Collections estimates a 33 per cent rise in insolvencies, citing supply chain issues and bottlenecks plus a lack of government support as key drivers. Credit insurer company Euler Hermes believes UK insolvencies will grow by 20 per cent in 2022, having estimated that government intervention helped halve insolvencies in Western Europe during the pandemic.

While the rise in insolvencies might sound alarming or unexpected, Administration List sees it differently. It is more of a return to a new normal, as the economy adjusts to the prevailing reality. Businesses in sectors impacted by restrictions such as retail and travel are especially vulnerable to facing insolvency over the next year, as rising case numbers restrict shoppers and travellers from getting from A to B. High inflation is squeezing consumers, and interest rates have already started to rise in the UK.

This means that the UK is experiencing a tightening of financial conditions over the year ahead, which could trigger more insolvencies. This could benefit you greatly if you are looking to make an acquisition and build an entirely new venture in this post-pandemic recovery, with more distressed business opportunities than usual to choose from when it comes to making that investment.

To learn more about the twists and turns 2022 could bring, subscribe to Administration List today.