Business insolvencies rise by a fifth in three years

The number of business insolvencies across the UK has risen by a fifth over the past three years, according to the latest figures from the Insolvency Service. 17,439 businesses entered into insolvency procedures last year — up approximately 100 from 2017 and an increase of 2,851 insolvencies from the figure in 2015.

The number of insolvencies in 2018 was high for companies in the construction (3,940), business support (3,346), retail (2,608) and manufacturing (2,902) sectors – with industry pressures such as stiff competition from e-commerce for retail, delayed payments, and rising wage and tax costs leaving many businesses struggling to stay solvent.

Increases were seen in most kinds of insolvency procedures last year, with the number of compulsory liquidations rising in step with a slowdown in growth of voluntary liquidation CVAs. CVAs were up by 49 from 2017, as a string of major retail chains used the procedure to reduce their rent costs and get out of costly lease burdens amid the fall of the high street to online retail. Elsewhere, there was a particular increase in the number of companies electing to enter administration, with the total number of UK businesses entering administration projected to surpass 1,500 this year at its current rate of growth.

It appears that uncertainty relating to the outcome of Britain’s impending withdrawal from the EU may be partially influencing the increase in the number of companies running into trouble. From 2009 until 2015, the number of businesses going insolvent had been on a six-year decline as levels settled after the global financial crisis – with rates dropping by 39% over the period. Following the UK’s 2016 vote to leave the EU however, the annual insolvency total jumped up by nearly 2,000 from the previous year.

With economic uncertainty ongoing and a range of pressures still impacting businesses, the outlook for companies in 2019 remains bleak. Analysts estimate that 481,000 British businesses are currently in significant distress and exposed to a real risk of becoming insolvent. Companies hoping to guard against these risks will need to make sure that their credit management and accounting systems are strong enough to give them the best chance of retaining liquidity in the face of mounting pressures.