Tom D'Arcy

Insolvencies rise again in Q4 2018

The most recent insolvency stats have been released from the insolvency service for Q4 of 2018.  Corporate insolvencies increased to 16,090 which is the highest level since 2014 and comprised of increases in all types of corporate insolvency with the exception of administrative receivership.  Whilst corporate insolvencies feel by 9% from Q3 to Q4, there was still an 11% increase compared to Q4 2017.

R3 state that the most commonly cited reason for businesses is weak consumer demand which has been driven by a squeeze on disposable income and uncertainty about the short a medium-term economic outlook for the UK.  The number of personal insolvencies have continued to increase primarily as a result in a rise in the number of Individual Voluntary Arrangements (IVA) which, with the exception of 2015, have increased year on year from 2009.  A large proportion of the IVAs being approved relate to debtors that have consumer debt indicating a wider issue regarding levels of household borrowing.

Many of the corporate cases we have seen in the early part of 2019 have stated that unforeseen and exceptionally poor trading conditions over the Christmas period led to insurmountable cash flow problems and insolvency.

We have seen that the uncertainty regarding the impact of Brexit is causing major companies to reconsider their short term strategy and whether to relocate production away from the UK.  The uncertainty is undoubtedly causing delay in investment and potential supply chain problems that may begin to surface over the course of the next few months

R3 has highlighted public service provision as a sector that is likely to be under significant pressure as a consequence of reduced spending and subsidies but also as a result of necessary expansion to offset shortfalls in public sector service provision.

In his recent blog, my colleague Chris Latos considered the impact of Government proposals to elevate HMRC to having preferential status in insolvencies from April 2020 onwards.  Once such impact is likely to be an increased risk that small businesses are unable to obtain finance from secondary unsecured lenders which may create significant problems for those companies looking to increase stocks ahead of Brexit and needing the finance to do so.

Small businesses are of course most at risk given that they are unlikely to have the resources to undertake any significant planning for a post-Brexit UK and we would encourage directors to take early advice when as many options as possible are available.

If you would like to talk to us for advice please do get in touch