Insolvency statistics – the road ahead

The statistics released last week by the Insolvency Service for the first quarter of 2017 show an increase in total company insolvencies in England & Wales of 5.3% compared to the same quarter in 2016, driven by an increase in underlying numbers of creditor voluntary liquidations.  Does this show that economic pressures are beginning to take hold?

Despite a background of global economic uncertainty the business sector seems to have remained resilient during 2016, benefitting from historically low interest rates and a growing economy.  However, during the first quarter of 2017 a number of high street names went into administration, including Brantano, Jones the Bootmaker, Jaeger and Agent Provocateur.  Those sectors which are reliant upon consumer confidence and rising costs of raw materials are beginning to feel the effect, with the impact of the new national living wage and business rate rises compounding their problems.  The highest number of company insolvencies (after allowing for seasonal distortions) was in the construction sector, followed by wholesale and retail trade and vehicle repair.

Individual insolvencies during the first quarter of 2017 were at the highest level since mid 2014, with individual voluntary arrangements (IVAs) in particular showing an increase of 12.5% compared to the last quarter of 2016 and a staggering 35.2% increase over the first quarter of 2016.   Households are feeling the pressure from inflation with wage levels failing to keep pace.  The ratio of personal debt to household income is on the rise with the level of credit card debt assuming ominous and long term unsustainable proportions.

Whilst there is no expectation that numbers of insolvencies will suddenly spike over the coming months, businesses would be well advised to start review their finances and take all necessary steps to ensure their business model remains viable in this more challenging environment.