Businesses insolvencies hit four year high

The Insolvency Service has published the latest business insolvency statistics for England and Wales for Quarter 4 2018 (October to December 2018) which show that that the underlying number of company insolvencies increased in 2018 to 16,090, the highest level since 2014. Seasonally adjusted corporate insolvencies fell by 9% in Q4 2018 compared to Q3 2018 but rose by 11% compared to Q4 2017.

All types of company insolvency increased in 2018 compared with 2017 except administrative receivership.

Commenting on the Stuart Frith, President of insolvency and restructuring trade body R3, said “After three years of relatively flat numbers, 2018 saw insolvencies creep back up to levels last seen in 2014. The pressure point for businesses most frequently cited by our members is weak consumer demand. People just don’t have much spare cash at the moment, reflected in the rise in the number of personal insolvencies also confirmed today. Although recent government figures showed that the weekly amount spent by households has hit its highest level since 2005, much of that expenditure went on housing and transport, with less left over for consumer outlay. This is having a big impact on consumer-facing businesses, such as retailers and the restaurant sector.”

“This also spells bad news for businesses at one remove from the consumer, such as manufacturers supplying consumer products, shop fitters, or logistics firms. Every business is part of a network and one struggling business will affect others. R3 research from the middle of last year found that one in four UK companies had taken a financial hit following the insolvency of a supplier, customer or debtor in the previous six months, illustrating the reach and impact of the ‘domino effect’.”

“Meanwhile, uncertainty around the shape of the final Brexit deal and future EU-UK trading relationship is already forcing businesses to hold off on investment decisions, again affecting their suppliers and customer networks. It has also prompted some companies to stockpile, putting a squeeze on cash flow and reserves.”

“An area to watch in 2019 will be public service provision. Businesses, social enterprises and charities in the health and education sectors are being hit by a double whammy: Government funding or subsidies are being cut, while these sectors are also expected to pick up the slack for work that the public sector doesn’t have the resource to carry out anymore.”

“Government proposals to give itself priority status for repayments in insolvencies may well have a negative impact on the ability of small businesses to finance themselves this year. With uncertainty in the supply chain, many businesses will be seeking to increase their stock levels to counteract this and will require new finance to do so. But if funders are concerned that the Government will take a bigger cut if things go wrong, then lending decisions become much harder.

“Across 2018, 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 which are finding current market conditions tough to seek out knowledgeable and qualified advice from a professional source. The earlier a company seeks advice, the more options it will have.”

Federation of Small Businesses (FSB) National Chairman Mike Cherry, said “These latest figures show the huge strain that small businesses are currently facing with rising employment costs, unfair business rates, as well as significant uncertainty as the UK, exits the European Union. Both the total number of new company insolvencies as well as underlying total insolvencies have reached their highest levels since 2014, which illustrates the great turbulence that small firms are now up against.”

“It’s a great concern to see almost 1,000 self-employed individuals suffered from bankruptcies in Q3 of 2018.”

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

“Our latest figures have found that small businesses are having to spend 15% more on the likes of taxes, levies and employment obligations than they were six years ago.”

“Meanwhile, confidence amongst small firms is at its lowest levels since the wake of the financial crash.”

“These factors, amid the ongoing uncertainty as to what the UK’s relationship will look like with the EU after the 29 March 2019, mean that SMEs are under the cosh more than ever and it’s time that action was taken to prevent more businesses going insolvent in the future.”

Louise Brittain, Partner and Head of Contentious Insolvency at Wilkins Kennedy said “It is very worrying that the number of company insolvencies is at its highest level since 2010. More creditors are forcing companies into liquidation by quite a sizeable amount which means less directors are taking a financial hit.”

“However the rise in Administration shows that directors are trying to take pre-emptive action to sell their business but clearly when that isn’t possible they are waiting for creditors to take action.”

Brian Johnson, business recovery and insolvency partner at H W Fisher & Company said “The reality of Brexit, and the economic uncertainty caused by it, is beginning to bite. That much is clear from the latest insolvency figures. Until there is a greater certainty about Britain’s future, businesses and households will continue to suffer.”

“Company insolvencies – when bulk insolvencies from 2017 are excluded, an aberration caused by the mass closure of personal service companies – rose 10% in 2018 compared with a year earlier and to the highest level since 2014. The economic uncertainty caused by Brexit will be responsible for a great deal of these insolvencies.”

“Large companies are withholding investment decisions, which is already having a significant detrimental impact on smaller companies further down the supply chain. There is plenty of evidence of this happening in both the retail and construction sectors.  Moreover, a lot of larger retailers and construction firms are stretching payment terms to the limit, heaping even more pressure on their suppliers. A disorderly Brexit will only exacerbate these issues meaning more companies are bound to go to the wall.”