Rising energy costs and the withdrawal of the government's pandemic support led to the highest level of insolvencies in England and Wales in at least 60 years during the past quarter.
During April-June, there were 5,629 company insolvencies, which is 81% more than a year ago and 13% higher than the previous quarter.
Most of these (4,908) were creditors' voluntary liquidations (CVLs), in which a company unable to pay its debts decides to shut shop.
According to the UK Insolvency Service, CVLs reached their highest quarterly level since 1960 due to rising energy costs and the withdrawal of government support for Covid.
The latest profit warnings analysis recently revealed that UK-listed companies issued 66% more warnings in the first half of 2022.
The record levels of CVLs are the first tranche of insolvencies expected to see involving companies that have struggled to stay viable without the lifeline of government support provided over the pandemic, said Samantha Keen, a turnaround and restructuring strategy partner at EY.
"We expect further insolvencies in the year ahead among larger businesses who are struggling to adapt to challenging trading conditions, tighter capital, and increased market volatility," she said.
While CVL numbers are now higher than pre-pandemic levels, the numbers for other corporate insolvency procedures have now increased above pre-pandemic levels.
Other insolvency types, such as administrations, where business rescue is the focus, remain significantly lower than pre-pandemic levels.
"I am concerned that businesses have an overload of covid related debt such as bounceback loans and HMRC arrears, which reduce options available for an insolvency practitioner to rescue the trading and jobs," said Claire Burden, an advisory partner at Evelyn Partners.
Inflation is also testing the viability of businesses across industry sectors, while the cost of borrowing is also rising, with the Bank of England expected to further raise interest rates this week, said John Cullen, business recovery partner at Menzies.
"This is indication of the severe cashflow pressures that many businesses are facing," Cullen said, adding in addition to rising costs, many businesses are facing staff shortages and supply shortages, which are limiting revenues at a critical time, just as demand levels are coming back to pre-pandemic levels.
The latest profit warnings analysis by EY-Parthenon revealed that of the increased number of warnings from UK-listed companies, over half (58%) cited rising costs.
"As profit warnings increase, we’re seeing more companies issue multiple warnings with many approaching the ‘three warning rule’ where, on average, one-in-five companies delist within a year of their third warning, most due to insolvency," said EY's Keen.
"While many companies have been grappling with rising costs and supply chain issues in the first half of the year, falling consumer confidence and demand is likely to be the next significant headwind," Keen added.
With rising energy bills and slower consumer spending expected in the autumn, just as many retail and hospitality businesses prepare for the all-important 'golden quarter', Keen said companies "will need to ensure they adapt quickly in order to safeguard their long-term survival during what looks to be a tough autumn, where lower growth, tighter capital and market volatility are likely to be the norm".