The Insolvency Service has published the latest business insolvency statistics for Q3 (July to September 2018) for England and Wales. The statistics show that total business insolvencies increased by 9% in Q3, and rose by 19% compared to Q3 2017. This was driven by a rise in underlying creditors’ voluntary liquidations which increased to their highest level since Q1 2012.
In response to the figures, the ICAEW says business rates are causing more companies to become insolvent and indicate a further increase in businesses not surviving. This is likely due to the tough trading conditions that high street shops are facing in the current economic climate.
Nick Levine, ICAEW Head of Enterprise, said “It is unsurprising that once again businesses are continuing to struggle throughout 2018 and I don’t expect things to improve going into 2019. It is not only high street stores suffering. The hospitality industry is also seeing an increasing amount of businesses go insolvent which is potentially being fuelled by migrant hospitality workers leaving the UK. It is important that hospitality businesses in the UK continue to recruit as they play an important role in the UK economy.”
“Still the biggest hurdle that companies are facing is business rates. Although Philip Hammond announced in the Budget, that he will reduce Business Rates for companies that have a rateable value of £51,000 or below, many others will continue to suffer.”
Duncan Swift, Vice President of insolvency and restructuring trade body R3 said “This is the first time we’ve seen more than 4,000 corporate insolvencies in one quarter since the start of 2014. So far, 2018 has been a tough year for English and Welsh businesses, with insolvency numbers equal to or much higher in every quarter than in the same period last year. The key causes of insolvencies seen by the insolvency profession are familiar. Rates problems, particularly for retailers, are frequently mentioned, and the Chancellor’s rates-relief announcements in the Budget have come too late for some. It’s worth noting that high profile insolvencies can have a knock-on effect for others, too. For every struggling retailer unable to pay its debts, there will be numerous suppliers as well as shop-fitting or delivery firms who come under pressure, while there have been well-publicised troubles in sectors like construction, too.”
“R3 members have picked up on a number of extra concerns recently. Uncertainty over the shape Brexit will take has led to decision-making delays at some large companies, which will have had an impact on their smaller suppliers expecting new contracts or investment. Infrastructure problems have started to be mentioned, too: traffic congestion is hurting companies, especially those based in city centres, in terms of longer delivery times and loss of productivity.”
“The outlook for businesses is still difficult. Negative consumer confidence, high personal debt levels, renewed upwards pressure on wages, and possible future interest rate rises will all have to be navigated. On the insolvency front, yesterday’s Budget saw the Government announce plans to partially restore HMRC’s preferential position in insolvencies, a move which could have unintended consequences for insolvency numbers. With HMRC legislating its way towards the front of the queue for creditor repayments after company insolvencies, other creditors will receive less back after insolvencies, with a knock-on effect for their own finances. The change may also affect banks’ appetite for lending to distressed businesses, jeopardising business rescue. This will be something to watch in 2020 when the changes are due to kick in.”
“In unsettled times, unscrupulous advisers will seek to take advantage by offering unworkable solutions to companies looking for guidance. We would advise checking the credentials of all sources of advice, and sticking to advisers who are regulated, licenced, and accountable.”