New figures from the Insolvency Service show that the number of companies in some sort of formal insolvency procedure (liquidation, administration, and company voluntary arrangements) is up from the 1st quarter of 2019.
Company insolvencies, in Q2 2019, increased to 4,231 (2.6%) its the highest level since Q1 2014 in England and Wales and rose by 11.9% compared to Q2 2018. This was due to a rise in company voluntary liquidations of 6.9 percent compared to Q1.
Rick Smith, Managing Director of Forbes Burton, commented “It’s a shame to see the continued rise of companies which are getting themselves into difficulty but it’s not unexpected. Businesses are facing a multitude of threats, including problems within our own government and economy, as well as continued uncertainty around Brexit. I hate to say it, but I fully expect these figures to increase further year on year as well”
The President of insolvency and restructuring trade body R3, Duncan Swift, said “Today’s figures are evidence of a difficult period for UK businesses. Tighter constraints on consumers and significant uncertainty about the future of the UK economy and the UK’s relationship with the EU are just some of the key factors at play that are making the business climate a challenging one. Questions around what Brexit really means have hit investment and growth levels, and led to a degree of economic stagnation.”
“In addition to this, consumer confidence is low, as people worry about the weeks, months and even years ahead. This may mean consumers are only buying what they need. Businesses in a variety of industries are struggling right now. Retailers are suffering as the world in which they operate changes and more and more people shop online. Manufacturing output and confidence is low. Private and business car sales are down. And businesses which stockpiled items ahead of the original Brexit deadline of 29 March will now be seeing those decisions have an impact on their cash flow levels. Simply put: it’s an uncertain, difficult time to be in business right now.”
“For some businesses, restructuring through an insolvency procedure is the best means of dealing with stalled growth. Although numbers of administrations, a procedure designed to support business restructure and rescue, have fallen back slightly from last quarter, they are still at their second highest quarterly level since 2014. Meanwhile, the increase in Creditors’ Voluntary Liquidations suggests business rescue is more difficult to achieve in the current economic environment, perhaps reflecting greater uncertainty that purchasers can deliver sustainable business turnarounds.
“Any company directors who are concerned about their business or the market conditions it’s operating in should seek advice from a knowledgeable and qualified professional source. The earlier they do, the more options they will have for helping their company recover and start to thrive again.”
Martin McTague, Policy & Advocacy Chairman of the Federation of Small Businesses (FSB), said “These latest figures are hugely concerning, highlighting the immense strain that small businesses are under with rising employment costs, business rates and sustained political uncertainty. The construction sector, notoriously dogged by late payments, has seen the biggest share of insolvencies, with more than 3,000 firms going under in the year ending in Q2.”
“Other labour-intensive industries – administration, hospitality and retail – are also suffering as they struggle with higher wages, pensions auto-enrolment costs and skills shortages. Our latest confidence index shows confidence within the construction, wholesale and retail sectors is in deep negative territory.”
“Uncertainty is now severely weighing on small firms and the self-employed, making it harder for them to invest, plan and grow. Central to this is the unknown nature of what the UK’s future relationship with the EU will look like and the growing risk of a cliff edge no deal Brexit on October 31, for which smaller businesses are simply not prepared. Smaller firms are under the cosh more than ever and it’s time for interventions to help prevent more businesses becoming insolvent.”
“The Government’s words on Brexit preparedness need to be matched by actions: the automatic issuing of Economic Operator Registration and Identification numbers to VAT-registered firms that currently trade goods exclusively with the EU and access to Brexit vouchers to help smaller businesses to prepare for a no deal scenario on October 31st. There’s a real danger that a chaotic, sudden no-deal exit on 31 October will cause insolvencies to spiral further, meaning a significant hit to UK economic growth.”
Louise Brittain, Partner and Head of Contentious Insolvency at Wilkins Kennedy said Since 2016 the number of company failures has been erratic quarter on quarter largely as a result of large corporate failures and many companies in the UK running on tight margins and as a result of the many zombie companies still trading.”
“Administrations increased 15 per cent on the same quarter last year and compulsory liquidation has also increased meaning company directors and creditors are choosing to use the court process as a means of dealing with the company debt. Voluntary liquidations have also increased and we are seeing a larger number of companies who are reliant on exchange rates having to cease trading in recent months as a result of the delays in Brexit.”
More information can be found here: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/821413/Commentary_-_Company_Insolvency_Statistics_Q2_2019.pdf
And: https://www.gov.uk/government/statistics/company-insolvency-statistics-april-to-june-2019
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