Threat of insolvency for manufacturers on the rise

By Gwen Ridler

- Last updated on GMT

The manufacturing sector needs to prepare for a record number of insolvencies, accroding to Higgs.  Image: Getty, Stas_V
The manufacturing sector needs to prepare for a record number of insolvencies, accroding to Higgs. Image: Getty, Stas_V

Related tags legal insolvency

Insolvencies in the food and drink manufacturing industry have seen a steady decline since September last year, but a record number of insolvencies could be on the horizon for the manufacturing sector, according to law firm Higgs.

Insolvencies across the food and drink industry remained the same compared to the same time last year, however the number of food firms filing for insolvency doubled from six to ten, while beverage firms dropped by 66.6% (from 12 to four).

Total insolvencies have been on a decline since a spike of 27 in September 2022, with an average of 20 food and drink manufacturers each month since February 2022.

Despite a positive outlook for the industry, law firm Higgs warned that company insolvencies in manufacturing could hit record highs this year.

Manufacturing insolvencies

A total of 147 manufacturing companies entered insolvency in February this year – up from 127 in February 2022 and 48 in the same month 12 months earlier (2021).

“Company insolvencies are at record levels across the board and unfortunately manufacturing is high on the list,”​ said Lauren Hartigan-Pritchard, head of Restructuring & Insolvency at Higgs.

“The circumstances for the rise in insolvencies varies sector-by-sector as each industry has its own challenges. We are witnessing a perfect storm of events that is making life very difficult for many businesses right across the country. Unless the economic picture improves, high levels of business failures are guaranteed.”

Compulsory liquidations, including partnership winding-up orders, stood at 288 in March – up 106% year-on-year. Overall, in Q1 there were 5,747 company insolvencies, 18% higher than in Q1 2022.

Worst hit sectors

The worst-hit sectors, according to the most recent Government stats for February, were construction (18% of all), motoring (15%), hospitality (14%), admin services (10%) and manufacturing (8%).

The report also found that 932 directors were disqualified during the financial year 2022/23, a 16% increase on 2021/22. Around a half of director disqualifications in 2022/23 (459) included an allegation relating to abuse of the Government’s Covid-19 Bounce Back Loan Scheme.

Suky Mann, principal associate in Higgs' Restructuring and Insolvency team, added: “With Government figures suggesting that Bounce Back fraud has resulted in an estimated £3.5bn in losses, we suspect this is the mere tip of the iceberg in a raft of disqualifications to come in the next 12 months.

“It’s not just directors of insolvent companies that have felt the full force of the Insolvency Service. In December 2021 the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 gave the Insolvency Service new powers to disqualify directors of dissolved companies.”

Meanwhile, Andrew Taylor, partner and head of restructuring at law firm Shakespeare Martineau, provides insight into how food and drink firms can avoid administration.

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