Liquidations up 10% as Brexit uncertainty hits

The number of insolvent businesses being liquidated rather than restructured has increased by 10% in the last year, with rising interest rates and Brexit disruption fuelling the surge, according to analysis by Moore Stephens

The firm says 14,270 business went into liquidation in 2018, up from 13,010 the previous year.

Of the total number of liquidations, there were 3,120 compulsory liquidations, up from 2,810 in 2017, while new creditors’ voluntary liquidations rose to 11,150 from 10,200 over the same period.

Moore Stephens found that many of the businesses being liquidated are ‘zombie’ businesses that have been struggling for some time, which it says are finding it particularly hard to deal with the slowdown in orders caused by the combination of rising interest rates and Brexit uncertainty.

‘Zombies’ are businesses whose weak profitability and lack of growth means that, whilst they can pay monthly interest payments on their debt, they are unable to reduce any of the principal element of their debt. As these businesses have no capacity to take on more debt, they are unable to borrow more money to tide them through the possible volatile order flow from clients that may come with Brexit uncertainty.

Duncan Swift, Moore Stephens partner, said: ‘The recent slowdown in the economy is now leading to more business closures rather than just business restructuring.

‘Many small businesses are struggling to stay in operation as they are unable to cover what might only be short term gaps in their order books.

‘Unfortunately, many of those businesses are already so financially stretched that they are just the kind of businesses most lenders want to avoid.

‘If there was some clarity on the final Brexit deal then we could see a bounce back in order books and an end to some of the short-term stress.’

Report by Pat Sweet

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