Why are corporate insolvencies rising in 2018?

The Insolvency Service recently released their Q3 findings on company and individual insolvency, with the statistics stating corporate insolvency is on the rise. The number of businesses entering insolvency has increased by 19% for Q3 in 2018, when compared to the previous three months, and we are looking into the reasons for the rise and the survival tips for companies in today’s climate.


Understanding the rise of corporate insolvency in 2018

As mentioned above, the latest insolvency statistics make for tough reading for many companies. Official figures have recorded the 19.3% rise for corporate insolvency in the UK when compared with the same three months of last years. Similarly, these figures indicate limited company insolvency is at its highest rate since 2009, suggesting that businesses today are facing fresh challenges to compete and lead their particular market.

In total, in the UK, there were 4,308 businesses placed on the company insolvency register, held by companies house. These statistics were recorded in the 12 months ending in Q3 2018. The primary reason for the increase – as indicated by the Insolvency Service – is seen in a rise in the number of creditor voluntary liquidations.

While creditors voluntary liquidations and the overall number of corporate insolvency has drastically increased, the number of compulsory liquidations has fallen. Compulsory liquidations, initiated by a winding up petition, result in the complete closure of the business. However, the number of compulsory liquidations in Q3 2018 fell by 2.5% compared to the previous quarter, but has risen by 11% when compared to Q3 2017. But, what are the reasons for these numbers…

increase-in-corporate-insolvency

Why are the numbers rising?

The Insolvency Service has noted the rise in the overall number of insolvencies is, likely, due to the increase in creditors voluntary liquidations. There has been a surge in the number of CVLs , with 3,083 companies entering the procedure in 2018, up by 20.7% when looking into the figures of Q3 2017. These levels are the highest quarterly levels since Q1 2012.

The construction sector recorded the highest number of underlying company insolvencies, with 2,924 insolvencies entered into in the 12 months ending Q3 2018. This number has jumped 3.8% compared to 2017. Perhaps, unsurprisingly due to recent news of the High Street, the wholesale and retail trade is suffering. The total number of insolvencies for the sector stood at 2,270 for the same period.

The key causes for the increase in corporate insolvency – particularly for the two industries mentioned above – are familiar. Issues such as rates problems and late relief announcements continue to affect many retailers. Similarly, high profile insolvencies can also have an effect on smaller, independent businesses, which form part of the supply chain.

A number of additional concerns for limited company insolvency have also arisen due to Brexit. Uncertainty over the UK’s and Europe’s future is beginning to shape the insolvency industry as many larger companies are having to delay certain decisions. In turn, these delays have a snowball effect on those businesses that rely on the larger companies – particularly if they are expecting new contracts or even investment.

How to survive

Surviving in the business world today means you have to be particularly savvy. Stay one step ahead of your competitors at all times and interact with your consumers. Similarly, it’s worth seeking insolvency services – such as advice and guidance – if your company is experiencing financial difficulty. Catching those issues early means there are more options open to saving the business, as opposed to closing down completely.

It’s also important to note that you should keep an eye on any clients/suppliers you believe are suffering from cash flow issues. Their issues may even affect your finances, and you can read more on the signs to watch out for here.

If you are facing any of the above issues or are seeking urgent insolvency advice, our business rescue experts can help to provide the right solution for the future of your company.

More News