Commenting on the Q4 2018 (October-December) England & Wales insolvency statistics Stuart Frith, president of insolvency and restructuring trade body R3, says:
Excluding one-off ‘bulk insolvency events’, seasonally adjusted corporate insolvencies in 2018 rose 10% from 2017. Excluding these one-off events, there were 16,090 insolvencies in 2018.
Seasonally adjusted corporate insolvencies fell by 9% in Q4 2018 compared to Q3 2018, but rose by 11% compared to Q4 2017.
“After three years of relatively flat numbers, 2018 saw insolvencies creep back up to levels last seen in 2014. The pressure point for businesses most frequently cited by our members is weak consumer demand. People just don’t have much spare cash at the moment, reflected in the rise in the number of personal insolvencies also confirmed today. Although recent government figures showed that the weekly amount spent by households has hit its highest level since 2005, much of that expenditure went on housing and transport, with less left over for consumer outlay. This is having a big impact on consumer-facing businesses, such as retailers and the restaurant sector.
“This also spells bad news for businesses at one remove from the consumer, such as manufacturers supplying consumer products, shop fitters, or logistics firms. Every business is part of a network and one struggling business will affect others. R3 research from the middle of last year found that one in four UK companies had taken a financial hit following the insolvency of a supplier, customer or debtor in the previous six months, illustrating the reach and impact of the ‘domino effect’.
“Meanwhile, uncertainty around the shape of the final Brexit deal and future EU-UK trading relationship is already forcing businesses to hold off on investment decisions, again affecting their suppliers and customer networks. It has also prompted some companies to stockpile, putting a squeeze on cash flow and reserves.
“An area to watch in 2019 will be public service provision. Businesses, social enterprises and charities in the health and education sectors are being hit by a double whammy: Government funding or subsidies are being cut, while these sectors are also expected to pick up the slack for work that the public sector doesn’t have the resource to carry out anymore.
“Government proposals to give itself priority status for repayments in insolvencies may well have a negative impact on the ability of small businesses to finance themselves this year. With uncertainty in the supply chain, many businesses will be seeking to increase their stock levels to counteract this and will require new finance to do so. But if funders are concerned that the Government will take a bigger cut if things go wrong, then lending decisions become much harder.
“Across 2018, R3’s members across the UK reported that demand for their services – from advice on turnaround and restructuring processes to formal insolvency procedures – increased, and this has carried over into the start of 2019. We would encourage directors of companies which are finding current market conditions tough to seek out knowledgeable and qualified advice from a professional source. The earlier a company seeks advice, the more options it will have.”