The latest results Insolvency statistics from The Insolvency Service for Quarter July to September 2017 (Quarter 3 2017) indicate that total company insolvencies decreased compared with the unusually high level in the previous quarter when a large number of connected personal service companies entered liquidation. When the statistics are compared with last quarter’s underlying numbers, company insolvencies rose in the most recent quarter.
Underlying corporate insolvencies rose 15% from Q2 to Q3 2017 and are 15% higher than this time last year (in Q2 1,131 connected personal service companies entered liquidation as a result of tax changes, these distorted the statistics and the above stats and comments refer to the insolvency statistics with these insolvencies removed).
Commenting on the statistics, Adrian Hyde, president of insolvency and restructuring trade body R3, said “Corporate insolvency numbers have bounced around over the last couple of quarters as a result of the impact of tax quirks and timely economic boosts, including summer’s surprise drop in inflation. This quarter’s rise in underlying insolvencies, however, moves things back towards the trend of growing insolvency numbers we’ve had since the middle of 2016. The prolonged fall in insolvencies we saw between 2010 and 2016 appears to have begun to change direction.”
“Businesses have faced a number of fresh challenges over the last year. Increasing input costs caused by post-referendum inflation increases and a weaker pound, a rising national living wage, the added costs of pensions auto-enrolment, and, for some businesses, rising business rates will have hurt bottom lines. Some of these added costs will have been passed onto customers, but reliance on consumer confidence isn’t necessarily a recipe for long-term financial health. Consumers’ ability to absorb price rises is limited, and with spending fuelled by consumer debt, potentially unsustainable.
“An interest rate rise is just around the corner, too. Although it may be a small one, it may be too big for those businesses and their customers already on the edge. R3’s own statistics on the growth and distress levels reported by businesses show the numbers of businesses with signs of growth have fallen from recent record highs, while the numbers of businesses with signs of distress are increasing from recent record lows.”
Katharina Utermoehl, Senior Economist for Europe at Euler Hermes said “We expect UK insolvencies to rise by five per cent this year, and a further six per cent in 2018. British businesses face a combination of slowing consumer spending, cooling investment activity – domestic as well as foreign – plus a further depreciation of sterling, all of which will ramp up the pressure on payment terms and profit margins.
“Looking further ahead, a transition deal between the UK and the EU, at the very least, will prevent a sharper rise in business failures. We forecast the number of UK bankruptcies to surge by 15 per cent in 2019 in a no-deal Brexit scenario, compared to just three per cent with a transition agreement in place.”