Credit, Collections & Insolvency News
The Insolvency Service has released its annual figures on business insolvencies which show that excluding one-off ‘bulk insolvency events’, seasonally adjusted corporate insolvencies in 2019 rose 6.8% from 2018. Excluding these one-off events, there were 17,196 business insolvencies in 2019 – the highest since 2013
Underlying Creditor Voluntary Liquidations were at their highest annual level since 2009 while administrations increased last year compared to 2018. Both of these processes are usually initiated by the company itself.
Seasonally adjusted corporate insolvencies fell by 1.8% in Q4 2019 compared to Q3 2019, but rose by 8.1% compared to Q4 2018.
Commenting on the figures Duncan Swift, President of insolvency and restructuring trade body R3, said “Today’s figures are a reflection of anaemic economic growth throughout 2019. A number of factors have fed into this: political uncertainty, particularly around Brexit, has held back business decisions and investment, but weaker consumer confidence and sector-specific issues can’t be discounted either.”
“Business confidence fell last year compared to the previous 12 months and hiring confidence hit a seven-year low at the end of December. Alongside this, economic growth stalled, consumer debt increased, and consumer confidence remained low throughout 2019. Many companies also had higher wage bills to contend with, due to rises in 2019 in minimum and living wage levels, and increased employer contributions to auto-enrolment pensions.”
“Some sectors have been hit harder than others, although difficulties are increasing across the board. The construction sector struggled, traditional retailers were hit by declining footfall and the continued growth of online shopping, and the manufacturing sector had a worse year than 2018. Brexit-inspired stockpiling in 2019 may have added to disruption.”
“Every quarter in 2019 saw more corporate insolvencies than the corresponding quarter in the previous four years.”
“In terms of today’s figures, numbers of administrations, a procedure designed” to support business restructure and rescue, have increased by 24% compared to 2018, and are at their highest since 2013.”
“However, liquidations have been rising, too. For some businesses at the moment, rescue isn’t possible, although insolvency practitioners will be doing their best. It’s not an easy climate for doing business out there.”
“2020 will be a key year for UK businesses. A Government with a decisive majority ends some domestic uncertainty, although there are still big question marks around what Brexit will actually look like – and exactly when new rules will kick in. Wider economic performance will partly determine whether the recent trend of rising corporate insolvencies continues or not. On the plus side, signs are that businesses are looking to increase investment and recruitment this year, so there is cause for optimism.”
“Looking ahead, one additional factor which may affect insolvency numbers in Q1 and Q2 2020 is the Government’s plan to make HMRC a ‘preferential creditor’ in insolvencies from April. This will benefit HMRC at the expense of lenders, customers, and suppliers, and will hurt business lending. Some businesses could be pushed into insolvency due to a reduction in their lending facilities.”
“These insolvency figures should be a wake-up call to any director of a company which is finding it hard going at the moment. Anyone in this position should look to take objective advice from a qualified, professional source, to decide the best path forward – and the earlier this is done, the better.”
Meanwhile, an insolvency expert from business services firm Wilkins Kennedy says that sharp rise in the cost of court and government fees may be one of the reasons why voluntary company insolvencies have reached their highest annual level for six years.
Louise Brittain, Partner, Restructuring and Insolvency at Wilkins Kennedy also said it was becoming increasingly expensive for creditors to recover their debts. “The courts fees have gone up along with the official receivers’ fees so the chances of creditors recovering their funds is diminishing because it is becoming even more expensive to take action through the courts.”
“Therefore, creditors are waiting for company directors to take action themselves through a Company Voluntary Liquidation or through administration.”
“Before creditors start receiving money they are owed, the company has to have at least £20,000 to £30,000 of assets, so their chances of recovering their debts are reducing and it is a trend that we are seeing across all sectors.”
“Creditors are getting further and further down the food chain in favour of Government departments so it’s not cost to take action themselves. This food chain will only get longer if the HMRC proposals to make some taxes preferential again in April goes ahead.”