Mid-size and Northern companies have the highest insolvency risk – R3
Commenting on new statistics published by the Government on the number of England & Wales corporate insolvencies in 2017, broken down by company age, size and location, Duncan Swift, vice-president of insolvency and restructuring trade body R3, says:
Company Age and Size
• Enterprises aged 4-9 years old, or with turnover of £0.5-1m, or employing 20-49 people have the highest rate of insolvency
• An approximate 187,000 employees worked for an enterprise which entered insolvency in 2017
• The combined turnover of enterprises entering insolvency in 2017 was estimated to be £23.4bn
“The statistics show the difficulties UK enterprises experience when trying to go from very small to large. Growth can really trip a company up if it’s not managed carefully.
“Companies with a turnover of between £0.5m and £1m, or with 20-49 employees have the highest risk of insolvency. These companies are reasonably well established, but it’s at this point that things can come unstuck. The economies of scale enjoyed by very large companies aren’t necessarily there, while these companies aren’t as nimble as smaller counterparts. Fixed costs will be much harder to deal with.
“Companies trying to expand encounter unique difficulties. Founders may struggle to ‘let go’ and trust new management. New locations might not work, or new products may not perform as well as expected, despite significant investment. For fast growing companies, the back office processes tend not to keep up with sales: a company may have a popular service or product, but the credit management or HR structures haven’t kept pace.
“Finance is an obvious issue for companies this size. Access to finance might be an issue, and working capital might not be available to companies in this position. Moreover, inexperienced directors may also struggle to get to grips with working capital requirements, and it’s in companies this size where a lack of equity becomes obvious.
“Companies are most commonly facing insolvency when they’re four to nine years old. This could be a mix of different types of company: start-ups who have burnt through cash and investor or lender patience, or companies who have tried to take the next step and got ahead of themselves.”
Company Location
• More enterprises entered an insolvency procedure in London than anywhere else in 2017 but insolvency rates were highest in Yorkshire and Humberside and elsewhere in the North
“While London has the highest share of insolvencies in England and Wales – thanks to the sheer number of enterprises based or headquartered there – it’s in the North where companies are at greatest risk of insolvency. This could be down to a lack of infrastructure relative to London and the South East, or a lack of investment. The Government has made a point about boosting the Northern economy, but there is clearly still a long way to go.
“Notably, the northern regions also see some of the highest rates of personal insolvency in the country.”