Company insolvencies numbers broadly unchanged in 2016

1st February 2017

The latest Corporate Insolvency statistics from The Insolvency Service have been released. The report shows that the total number of company insolvencies was higher in 2016 than the previous year, primarily caused by 1,796 connected personal service companies entering liquidation on the same date following changes to claimable expenses rules. The underlying number of company insolvencies was broadly unchanged in 2016 compared with 2015. In the last quarter (Q4 2016) the underlying number of company insolvencies rose compared with the previous quarter, and with Q3 2015, driven by an increase in compulsory liquidations.

Commenting on the statistics, Insolvency Service chief executive Sarah Albon said: “The underlying trend for company insolvencies was static in 2016. The overall increase for the full year is attributable to a one-off liquidation of a large number of personal service companies following the closure of tax loophole making them unviable.”

Andrew Tate, president of insolvency and restructuring trade body R3, said “The corporate insolvency numbers have been skewed by a wave of personal service companies being closed in the last quarter. It may have been just the closure of a handful of companies run by an umbrella provider which led to the spike. When you look beyond that though, 2016 had more or less the same number of insolvencies as last year.”

“Despite a number of challenges for businesses in 2016 – the fall in the value of the pound since June’s EU referendum and the introduction of the National Living Wage among them – there is still a lot of downward pressure on corporate insolvency numbers to balance these out.”

“Businesses are enjoying a significant safety net: compared to the pre-financial crisis economy, creditors – particularly banks – are much more patient with their borrowers, businesses are benefiting from record low borrowing costs, and an increased focus by the insolvency and restructuring profession on early intervention has helped businesses avoid formal insolvency procedures. Businesses are in a position where they can sit on cash or take on new borrowing. R3’s regular surveys of business distress have found that key signs of business distress are near their record lows, and that almost one-in-ten (8%) businesses are paying off only the interest on their debts.”

“The fall in the value of the pound since the summer will undoubtedly have been a shock to some smaller businesses though – almost half our members have said Brexit has come up in discussion with struggling businesses since June. After half a decade of falling insolvencies, insolvency levels are lower now than they were even before the financial crisis. However, the decline now seems to have stalled and we’ve had a very small increase instead – that’s the first increase in insolvencies since 2011.”

“2017 will be an important test: many larger firms will have been protected from the pound’s fall by currency hedges or long-term fixed-price contracts, but these will unwind or end this year. Businesses have been buoyed by resilient consumer spending since the EU referendum but much of this is on the back of increased borrowing – it’s not clear how sustainable this will be. Firms in the South East and London will also have to adjust to new, higher business rates from April.”

Click here for an infographic providing a guide to Corporate Insolvency figures in Q4 of 2016