Corporate insolvencies up 13%

The number of companies becoming insolvent hit a four-year high in the first three months of 2018, according to figures for England and Wales published by the Insolvency Service, which also show individual insolvencies are on the rise

A total of 4,462 companies entered insolvency in Q1 2018, consisting of 3,209 creditors’ voluntary liquidations (CVLs), which made up 72% of all insolvencies, 783 compulsory liquidations (17.5%) and 470 other insolvencies (11.5%).

The Insolvency Service analysis says that following changes to claimable expense rules, there have been three separate instances of large numbers of connected personal service companies entering liquidation. These companies have been identified in the raw data, allowing analysis of the underlying number of company insolvencies excluding the effects of what it calls these ‘bulk insolvencies’.

Excluding the effect of bulk insolvencies, the underlying number of company insolvencies rose by 13% on the previous quarter and by 0.6% on the same quarter last year, to the highest level since Q1 2014.

The construction industry had the highest number of insolvencies in the 12 months ending Q1 2018, followed by the wholesale and retail trade and repair of vehicles industrial grouping.

Graham Bushby, head of RSM’s restructuring advisory practice, said: ‘While the underlying economy is performing well at present, Brexit uncertainty and nervousness around the impact of trade wars between the major economies are beginning to affect confidence levels. This may be making investors and lenders slightly more cautious when it comes to extending or offering increased credit facilities.

‘These figures also highlight challenges facing the construction sector, which has been hit by increases in labour and material costs and a slowdown in price increases, not to mention the knock-n effect of the Carillion collapse.

‘Given the prospect of impending rate rises – albeit limited and gradual ones – we could well see corporate insolvencies rise further throughout 2018.’

Total individual insolvencies increased in Q1 2018 to 27,388, reaching the highest quarterly level since Q3 2012. This was driven primarily by an increase in individual voluntary arrangements (IVAs), which reached a record high, while the number of bankruptcies and debt relief orders (DROs) also increased.

IVAs made up 61% of the total, while there were 6,524 DROs (24%) and 4,188 bankruptcies (15%). The number of IVAs in Q1 2018 rose 8.3% compared with Q4 2017. This was the largest quarterly number of IVAs since they were introduced in 1987.

Duncan Swift, vice-president of insolvency and restructuring body R3, said: ‘Given the pressures people’s personal budgets have been under, this is perhaps not a surprising result. Although wage rises are starting to outpace inflation again, this will have come too late for some who have gone a long time without a real pay rise.

‘Interestingly, bankruptcies, which are associated with larger debts or sudden financial shocks, have started to shift upwards for the first time in a long time. Most of the increase is down to individuals’ applications for their own bankruptcy.

‘This may be down to increasing indebtedness, although growing familiarity with the new, simpler online process for bankruptcy applications may have played a part, too. Previously bankruptcy applications had to be made in court.’

Insolvency Statistics – January to March 2018 (Q1 2018) are here.

Report by Pat Sweet

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