Business Insolvencies increase by 6.3%

The Insolvency Service has published its latest insolvency statistics which indicate that the underlying number of business insolvencies increased in England & Wales.

Total underlying company insolvencies increased in Q1 2019. Creditors’ voluntary liquidations, administrations and company voluntary arrangements (CVAs) all increased in Q1 2019, while compulsory liquidations decreased. In addition, administrations increased to the highest level for 5 years.

Total underlying company insolvencies increased in Q1 2019. There were 4,187 total underlying company insolvencies in Q1 2019; this is 6.3% higher than in Q4 2018. Compared to the same quarter last year, this was an increase of 5.1%. This is the second highest underlying level of insolvencies in any quarter since Q1 2014. This rise was driven by increases in CVLs which increased by 6.2% compared to Q4 2018 and administrations which were up 21.8%. CVAs also increased by 43.1%. Compulsory liquidations fell in Q1 2019 by 2.7%.

Of the 2,822 creditor’s voluntary liquidations in Q1 2019, one of these was due to a late registration from a bulk insolvency event in Q4 2018 when there were 776 bulk insolvencies. In Q1 2019, 67.4% of all company insolvencies ended in CVLs, while compulsory liquidations accounted for 19.6% of all company insolvencies. The proportion of administrations increased to 10.8% in Q1 2019, the highest proportion since Q1 2014.

Responding to the announcement that the number of businesses that became insolvent in the first three months of 2019 rose by 6.3% compared to the previous quarter, Federation of Small Businesses (FSB) National Chairman Mike Cherry, said “These latest figures show the immense strain that small businesses are currently under with rising employment costs, unfair business rates as well as significant uncertainty as a result of the Brexit process.”

“Both the total number of new company insolvencies as well as underlying total insolvencies have reached their highest levels since 2014, which highlights the ongoing turbulence that small firms are now up against.”

The labour intensive construction, administration and retail sectors, are all struggling with higher wages and employer pensions auto-enrolment costs were the areas with the most insolvencies.

The construction sector, which is notoriously dogged by late payments, has the highest level of insolvencies and was up 0.6% from the 12 months ending Q4 2018.

Cherry “It’s good to see however that there was a fall of 8.9% in the number of self-employed individuals who suffered from bankruptcies in Q4 of 2018, but this remains higher than the same period in the year before.”

“The self-employed community, who are 4.8 million-strong, are still denied basic support in too many areas.”

“FSB’s own research has found that small businesses are spending around 15% more on the likes of taxes, levies and employment obligations than they were six years ago.”

“Ongoing uncertainty is a critical issue for small firms and the self-employed, and central to this is the unknown nature of what the UK’s relationship will look like with the EU.”

“SMEs are under the cosh more than ever and it’s time that action is now taken to prevent more businesses going insolvent in the future.”

Louise Brittain, Partner and Head of Contentious Insolvency at Wilkins Kennedy said the latest statistics reflected that more and more companies are electing to enter into administration since it is quicker and more effective process to use to provide effective relief from creditor pressure. “The ease of accessing financial relief quickly after entering administration means it is a preferred option for companies who need to have a fast process and deal with a sudden crisis.”

“CVAs take quite a long time to put in place so by going into Administration, they immediately get protection from creditors.

“These figures show that more and more companies are needing to seek advice urgently or events are occurring that are taking them by surprise such as losing business from a major customer.”

“As a business, Wilkins Kennedy is also seeing a rise in the number of administrations that we are dealing with and that is reflected in the national figures for England and Wales.”

Stuart Frith, President of insolvency and restructuring trade body R3, said “Today’s underlying insolvency figures – the highest first quarter figures since 2014 – reflect the impact of stuttering consumer confidence and, to a degree, Brexit uncertainty on the business community.”

“The first three months of each year are where we typically see the consequences of missed targets in the run-up to Christmas and the end of the year, particularly in the retail sector. The pre-Christmas period can be make or break, and Christmas 2018 was particularly tough.”

“The factors which have been pushing insolvencies up over the last year or so haven’t gone away. Consumer confidence is low and consumers’ spending power is much diminished. Meanwhile the High Street is facing serious structural challenges as it comes to terms with changing consumer habits and online competition. Many consumer-facing businesses, in particular those in the retail sector, have exhausted their ‘standard’ toolkit for coping with reduced demand: further discounting won’t cut it, or is impossible, and a restructuring is the only option.”

“Struggles in consumer-facing sectors have a significant knock-on effect elsewhere, too. Every retailer is part of a wider network of businesses, from logistics firms to shop-fitters. No sector operates in isolation.”

“Businesses have also faced uncertainty around Brexit and the future of the UK’s trading relationship with the EU. This was particularly acute in the first quarter of this year as we approached the original ‘Brexit Day’ on 29 March. No Deal preparations put pressure on businesses to stockpile goods and materials, in turn putting pressure on their cashflow. Meanwhile, businesses reliant on EU trade saw orders and investment stall.”

“Over the last year, R3’s members across the UK reported that demand for their services – from advice on turnaround and restructuring processes to formal insolvency procedures – increased, and this has carried over into the start of 2019. We would encourage directors of companies who concerned about the current market conditions to seek advice from a knowledgeable and qualified professional source. The earlier they do this, the more options they will have for helping their company improve its performance.”