Company insolvencies up in 2018

While company insolvency rates dipped in the final quarter of last year, the total number of company insolvencies increased in 2018 to 16,090, the highest level since 2014, figures from the Insolvency Service show

Company insolvencies decreased in Q4 2018 on the previous quarter but were higher the same quarter in 2017.

Overall, all types of company insolvency increased in 2018 compared with 2017 except administrative receivership.

Insolvency Service figures show 17,439 companies entered insolvency in 2018, a rise of 0.7% on 2017. Total liquidations fell by 0.5% to 15,618; this consisted of an increase of 11.1% in compulsory liquidations to 3,117 and a decrease in creditors voluntary liquidations (CVLs) of 3% to 12,501.

There were 1,349 bulk insolvencies in 2018, roughly half as many as in 2017. Excluding bulk insolvencies, there were 16,090 insolvencies in 2018, a 10% increase on 2017.

Excluding bulk insolvencies, underlying company liquidations increased by 9.7% to 14,269 with CVLs increasing by 9.3%. This was the highest yearly total for company liquidations since 2013. Compared with 2017, administrations in 2018 increased by 11.2%, and company voluntary arrangements (CVAs) increased by 16%.

The estimated underlying liquidation rate in 2018 was one company liquidation per 249 of active companies, up from one in 264 in 2017.

John Cullen, business recovery partner at Menzies, said: ‘The recent dip in consumer confidence is beginning to impact spending behaviour and this is having an effect across the economy.

‘Retailers have been particularly badly affected and many are still saddled by historic rental agreements, which are undermining their profitability. Other sectors of the economy are also affected, among them the construction and hospitality & leisure industries.

‘Despite the low rate of unemployment, the current climate of Brexit uncertainty and political instability, is unsettling for consumers, and this is creating exceptionally challenging trading conditions for many businesses.

‘Corporate insolvencies are likely to continue to rise in 2019.’

Stuart Frith, president of insolvency and restructuring trade body R3, predicted that an area to watch in 2019 will be public service provision, as government funding or subsidies are being cut, at the same time as these sectors are required to take on additional work due to cuts in alternative provision.

He also flagged up changes to the insolvency regime which may cause funding difficulties for smaller companies, saying: ‘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.’

The Insolvency Service figures also show that in 2018, there were 115,229 personal insolvencies, an increase of 16% on 2017, and the highest annual total since 2011. Total individual insolvencies rose in Q4 2018 to the highest level since Q2 2010.

Personal insolvencies rose 35% from Q3 to Q4 2018, and are 35% higher than in the same quarter in 2017. This was primarily driven by increases in individual voluntary arrangements (IVAs) which reached their highest annual total on record.

Frith said: ‘Personal insolvency numbers have been rising steadily every year since 2015, and 2018 was no exception. As banks and other lenders have tightened their credit standards in response to the Bank of England’s concerns around consumer over-indebtedness, many people have run out of road.

‘It is notable that bankruptcies and debt relief orders have risen over a year in which, if you look at the headline figures, England and Wales enjoyed record low levels of unemployment, which is something normally associated with fewer insolvencies.

‘While unemployment is low, the nature of employment is much-changed. Working hours can be unpredictable and not necessarily well paid.’

Insolvency statistics are here.

Report by Pat Sweet

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