Corporate insolvencies on the rise

Late payment and the subsequent 'domino effect' have been identified as one of the leading causes of insolvency.

Underlying corporate insolvencies rose by 9% in Q3 compared to Q2 2018, and rose by 19% compared to Q3 2017, according to the Insolvency Service.

The government body has just released its statistics for insolvencies during Q3 2018 (July-September) in England and Wales.

Insolvency and restructuring trade body R3 reacted to the results, with vice president Duncan Swift commenting: “This is the first time we’ve seen more than 4,000 corporate insolvencies in one quarter since the start of 2014. So far, 2018 has been a tough year for English and Welsh businesses, with insolvency numbers equal to or much higher in every quarter than in the same period last year.

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“The key causes of insolvencies seen by the insolvency profession are familiar. Rates problems, particularly for retailers, are frequently mentioned, and the chancellor’s rates-relief announcements in the budget have come too late for some. It’s worth noting that high profile insolvencies can have a knock-on effect for others, too.”

He continued: “R3 members have picked up on a number of extra concerns recently. Uncertainty over the shape Brexit will take has led to decision-making delays at some large companies, which will have had an impact on their smaller suppliers expecting new contracts or investment. Infrastructure problems have started to be mentioned, too: traffic congestion is hurting companies, especially those based in city centres, in terms of longer delivery times and loss of productivity.

“The outlook for businesses is still difficult. Negative consumer confidence, high personal debt levels, renewed upwards pressure on wages, and possible future interest rate rises will all have to be navigated.

“On the insolvency front, the recent budget saw the government announce plans to partially restore HMRC’s preferential position in insolvencies, a move which could have unintended consequences for insolvency numbers. With HMRC legislating its way towards the front of the queue for creditor repayments after company insolvencies, other creditors will receive less back after insolvencies, with a knock-on effect for their own finances. The change may also affect banks’ appetite for lending to distressed businesses, jeopardising business rescue. This will be something to watch in 2020 when the changes are due to kick in.”

Swift concluded: “In unsettled times, unscrupulous advisers will seek to take advantage by offering unworkable solutions to companies looking for guidance. We would advise checking the credentials of all sources of advice, and sticking to advisers who are regulated, licenced, and accountable.”

Tags : businessinsolvency
Clare Nicholls

The author Clare Nicholls

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