Voluntary liquidation surge causes drop in company insolvency numbers

The total number of company insolvencies are down 29% due to a surge in personal service companies (PSC) entering a creditors’ voluntary liquidation (CVL) last quarter, following changes to claimable expense rules, however excluding these PSCs business insolvencies have increased by 5%

In Q4 2016 1,796 PSCs entered CVL following changes to claimable expense rules with a total of 16,502 companies entering insolvency in 2016.

The total number of company insolvencies has decreased by 26.1% with 3,967 companies entering insolvency in Q1 2017 compared to 5,564 in Q4 2016.

These 3,967 companies were made up of 2,693 CVLS (68%), 836 compulsory liquidations (21%) and 438 other insolvencies (11%).

Excluding the PSCs the number of companies who entered insolvency in Q1 2017 has risen by 4.5% compared to the underlying number in Q4 2016 and is up 5.3% compared with Q1 2016.

The number of companies entering CVL has risen by 5.3% compared with underlying figures for Q4 2016, and by 5.4% on Q1 2016. Excluding Q4 2016, CVLs were at the highest level since Q1 2014.

Compulsory liquidation has increased by 3.3% compared with last quarter and by 2.8% on Q1 2016, with administrations also rising but remain fairly stable.

An industry breakdown for Q1 2017 is not yet available.

Adrian Hyde, president of insolvency and restructuring trade body R3, said: ‘Having been flat last year and having fallen slowly from a post-financial crisis peak before that, corporate insolvency numbers are starting to move up again.

‘Low interest rates, creditor forbearance, and a growing economy mean insolvency numbers are still close to record lows but the past year and a bit has been much more challenging for businesses.

‘The pound’s fall in value since last year’s referendum will have hurt importers, while many of the currency hedges that protected larger companies in the immediate aftermath of the referendum will have begun to unwind at the start of the year.

‘Other challenges include the introduction of the National Living Wage and the rollout of pension auto-enrolment to smaller firms. More obstacles lie in wait, too. The rates changes – despite some last minute alterations – could hurt businesses in London and the South East, for example.

‘It’s worth noting, however, that insolvencies usually rise in the first three months of the calendar year as many companies come to the end of their financial year and have to make some difficult decisions.’

Amy Austin |Reporter, Accountancy Daily [2016-2019]

Amy Austin was reporter, Accountancy Daily and Accountancy magazine, published by ...

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