Company insolvencies rise by 9%

There has been a spike in the number of companies entering insolvency in Q3 2018, up by 8.9% compared to the previous quarter and 19.3% higher than in the same quarter of last year, according to official statistics from the Insolvency Service which show a sharp increase in creditors’ voluntary liquidations (CVLs)

A total of 4,308 companies entered insolvency in Q3 2018, consisting of 3,083 CVLs which made up 71.6% of all insolvencies, 741 compulsory liquidations (17.2%) and 484 other insolvencies (11.2%).

The underlying number of CVLs in Q3 2018 was 3,083, an increase of 20.7% on Q2 2018, and the highest quarterly level since Q1 2012.

The number of compulsory liquidations in Q3 2018 fell by 2.5% on the previous quarter, but increased by 11.1% compared to Q3 2017.

The construction industry had the highest number of insolvencies in the 12 months ending Q3 2018, followed by the wholesale and retail trade & repair of vehicles industrial grouping.

Duncan Swift, vice president of insolvency and restructuring trade body R3, said: ‘This is the first time we have seen more than 4,000 corporate insolvencies in one quarter since the start of 2014. So far, 2018 has been a tough year for English and Welsh businesses, with insolvency numbers equal to or much higher in every quarter than in the same period last year.

‘The key causes of insolvencies seen by the insolvency profession are familiar. Rates problems, particularly for retailers, are frequently mentioned, and the Chancellor’s rates-relief announcements in the Budget have come too late for some.’

Swift also raised concerns about the announcement in yesterday’s Budget that saw the government announce plans to partially restore HMRC’s preferential position in insolvencies, warning the move could have unintended consequences for insolvency numbers.

‘With HMRC legislating its way towards the front of the queue for creditor repayments after company insolvencies, other creditors will receive less back after insolvencies, with a knock-on effect for their own finances. The change may also affect banks’ appetite for lending to distressed businesses, jeopardising business rescue. This will be something to watch in 2020 when the changes are due to kick in,’ Swift said.

The statistics show personal insolvencies in Q3 fell 10.5% from Q2’s six-year high, and are 2.5% lower than in the same quarter in 2017.

There were 25,551 individual insolvencies in Q3 2018, 55.8% of which were individual voluntary arrangements (IVAs), 27.7% were debt relief orders (DROs) and 16.5% were bankruptcies.

Swift said: ‘The sharp drop in personal insolvency numbers is welcome, although it's worth paying attention to the increases in DROs and bankruptcies. These figures tend to be a better indicator of serious indebtedness than IVAs, which account for the bulk of personal insolvencies.’

The number of IVAs in Q3 2018 fell 18% compared with a record high in Q2 2018. Bankruptcies increased by 1.7% on the quarter and by 12% on the same quarter in 2017. DROs increased by 0.7% on the quarter and by 11.3% on the same quarter in 2017.

Insolvency Statistics: July to September 2018 are here

Report by Pat Sweet

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