Corporate Insolvencies Increase and Administrations reach five year high
Commenting on the results Chris Horner, Insolvency Director for Business Rescue Expert said: “These figures are the first official signs we’ve seen that creditors are becoming more aggressive in seeking to protect their interests.
“It may be that underlying Brexit tensions are coming through or there’s general impatience on their behalf that is causing more creditors to act, forcing businesses into compulsory liquidations so they can collect as much money as they are owed as possible.
“These statistics are even more evidence that company directors who are concerned about their company or current trading conditions should get in touch with us. The earlier we can analyse and discuss their situation, the more options will be available to them”.
The main headlines are that total underlying company insolvencies have increased to 4,187 so far in 2019.
Creditor’ Voluntary Liquidations (CVLs), administrations and Company Voluntary Arrangements (CVAs) all increased while compulsory liquidations decreased.
The headline figure of 4,187 total insolvencies is the second highest quarterly total in five years. It’s a 6.3% increase on the previous quarter and a 5.1% annual increase from the corresponding first quarter of 2018.
So far in 2019, 67.4% of all company insolvencies have ended in CVLs with compulsory liquidations accounting for nearly 20% of all company insolvencies.
The Administration Game
There were 451 administrations in 2019, up 21.8% on the previous period, which is the highest recorded level since 2014. The proportion of administrations in these figures is 10.8%, which is also the highest proportion since Q1 2014.
Additionally there were 93 CVAs in the quarter which is up 43.1% from the last reporting period although down 8.8% from the corresponding quarter of 2018. The Insolvency Service points out that for the past seven years Q4 has seen the lowest number of CVAs so they would expect that the Q1 figures would be higher.
Liquidation Diet isn’t working
The liquidation rate is slightly different to quarterly figures as it’s used to indicate the likelihood of a company becoming insolvent and liquidated in the previous 4 quarters.
In the previous year ending in Q1 2019, for every 10,000 active companies in England and Wales, 42.1 were liquidated which is up slightly from the 41.4 total recorded in Q4 2018.
The Insolvency Service says: “company liquidation rates are related to economic conditions: in periods of economic growth, liquidation rates tend to decrease. The peak level was 264.7 per 10,000 companies which occurred in the 12 months ending in March 1993, a year after the official end of the 1990s recession.
“The next sustained increase coincided with the 2008/09 recession with 94.8 companies liquidated per 10,000 in December 2009. Although the actual number of liquidations was slightly higher in 1993 than 2009, the liquidation rate was substantially higher. This is because the number of active companies more than doubled over this period so a smaller proportion of the total number of companies entered liquidation in 2009.
Look on our works and despair
Breaking down the figures further by type of business activity, the construction industry saw the most insolvencies with 3,013, which is up 0.6% from the previous quarter.
The area that saw the largest increase in the number of underlying insolvencies was the wholesale and retail trade including the repair of vehicles. This grouping saw an additional 67 cases compared to the previous reporting period. Administrative and support services saw 66 extra insolvencies, 58 for manufacturing and 57 for accomodation and food services.
Conversely, arts, entertainment and recreation saw the largest decrease with 23 fewer insolvencies.
Stuart Frith, President of R3, the insolvency and restructuring trade body wasn’t surprised by the rise in retail insolvencies.
“The first three months of each year are where we typically see the consequences of missed targets in the run-up to Christmas and the end of the year, particularly in the retail sector. The pre-Christmas period can be make or break and Christmas 2018 was particularly tough.
“The factors which have been pushing insolvencies up over the last year or so haven’t gone away. Consumer confidence is low and consumers’ spending power is much diminished. Meanwhile the High Street is facing serious structural challenges as it comes to terms with changing consumer habits and online competition. Many consumer-facing businesses, in particular those in the retail sector, have exhausted their ‘standard’ toolkit for coping with reduce demand: further discounting won’t cut it, or is impossible, and restructuring is the only option.
“Struggles in consumer-facing sectors have a significant knock-on effect elsewhere, too. Every retailer is part of a wider network of businesses, from logistics firms to shop-fitters. No sector operates in isolation.”