Opinion piece by Byron Massarella at Irwin Mitchell and Arabella Ranby-Gorwood a qualified Corporate Insolvency Practitioner at CRG Insolvency & Financial Recovery:"The start of a new year often heralds the breaking of a new dawn and fresh hope for the year ahead. Many people cast away their worries and concerns from the previous year and have a burst of renewed enthusiasm for the coming year."

That may be an old-fashioned and quaint way of looking at things and with the current economic, political and geo-political issues we are all facing, many will be wondering where that elusive burst of renewed enthusiasm has gone.

2023 looks certain to be a year of challenges for many people in the rural business community. Economic pressures stemming from the financial measures introduced during the Covid-19 pandemic, rising levels of inflation, soaring energy costs which are having a detrimental impact upon vegetable growing and not to mention the recently announced post-Brexit subsidies are all combining to create a perfect storm for our rural business community.

According to the latest company insolvency statistics, there were 26 company insolvencies in England and Wales’ agricultural, forestry and fishing sector in the final quarter of 2022. This may not seem like a massive amount, but when you compare this figure on a like for like basis with the final quarter of 2020, it represents an increase of some 333%.

There is little if any discussion about potential insolvency in the agricultural industry, but when they do happen, there are often some considerable losses to those effected. Farmers don’t usually have the personality that allows open conversations about finances when it comes to the land that they work, and their businesses. As soon as the word insolvency is thrown into the mix, it can often lead to a brick wall which is often hard to break through.

Many businesses have taken on more debt since the onset of Covid19, particularly the bounce back and Covid support loans, and their repayment now is causing additional challenges. A considerable amount of HMRC debt payments were delayed, and now are becoming both due and being actively pursued. Some businesses incurred trading losses during that time period, extended their borrowing during Covid or since, and are only now considering their options of continuing to trade or cease trading, and these decisions are having to be made. There are increasing insolvencies from these historical events, made worse by the current inflation and energy issues, it’s not just the current immediately obvious circumstances that are causing problems.

Farmers with higher lending can often be borrowing against the asset value, and this all works, provided the income stream can support this. There has been ever increasing amounts of borrowing from finance providers that have grown their market share. This may show less on the published figures, but these lenders activate quickly in their recovery processes when matters are not satisfactory. The rise in interest rates can only serve to cause more concerns to those who are on variable interest rates, or a reduction in net income. If there is not an early conclusion to the debt repayment, a previously viable loan agreement can become a real concern.

Many rural businesses are also now turning to short term cash suppliers or higher interest lenders (on a second charge basis), with the idea that this lending will tide them over until they have weathered the worst of the current financial pressures. That being said, it is often the case that it is these very lenders that often tip businesses over the edge of the financial cliff, or indeed force first charge holders / mortgage providers to ultimately take their own enforcement action, where they may have not done so previously.

So what steps can be taken to support an ailing rural business?

It may seem difficult, but if concerns over non-repayment exist, then seek advice at an early stage, because the longer it festers, the harder it becomes, and usually the higher the debt repayment that needs to be made. Insolvency practitioners often resolve these sort of issues for the banks/individuals due to their objectiveness, and are simply involved for the issue in hand, and then move on. That being said, it can be imperative to work with advisors that genuinely understand the farming community, as it requires a higher level of understanding and practicality like no other.

The economic environment suggests insolvencies will increase, and therefore risk to businesses can do similarly, so now is as important as ever to seek advice. Many trading businesses may not say, but often retain a working relationship with an insolvency practitioner or a specialist insolvency lawyer. When they know of problems, they can seek initial advice, be it for them or for others.

Agriculture is increasingly involving matters beyond the farm gate, and this trend can only lead to risk manifesting itself in many ways. An answer to this growing risk is for the current and future generations of farmers to have a close working relationship with both insolvency practitioners and specialist insolvency lawyers who can be consulted at an early stage, when options can be broader, to ensure that any financial difficulties are dealt with, rather than being left to fester for months, often years on end.