Rise of Business insolvencies expected in 2018

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New statistics were released by The Insolvency Service on business insolvencies. These statistics demonstrate:

• Company insolvencies increased in the last Quarter of 2017 because of a bulk insolvency   event, but the underlying number of company insolvencies decreased.
• The underlying number of company insolvencies increased in 2017, driven by a rise in       creditors’ voluntary liquidations.
• All other types of company insolvency decreased compared with 2016. People in 2017
• Total insolvencies rose for the second consecutive year, returning to the levels seen in       2013 and 2014.
• In the latest quarter (Q4 2017) Company insolvencies increased because of a bulk             insolvency event, but the underlying number of company insolvencies decreased.

In response to the figures the Institute of Chartered Accountants in England and Wales (ICAEW) said the statistics showed a varied outcome with a reduction in Q3 company insolvencies but an inactive stance in individual insolvencies. However, these figures are expected to get worse in 2018 for businesses in Q1 as consumers are tightening their purse strings post-Christmas. ICAEW reminds businesses facing insolvency to seek help earlier and help encourage recovery.

Clive Lewis, ICAEW Head of Enterprise, comments: “Underlying 2017 business insolvency figures showed an 11% reduction on 2016 but these figures are expected to increase in 2018. In December and after Christmas consumers have reduced their discretionary spending in favour of the basics such as food. This will continue to have a negative impact for businesses leading to an increase in the business insolvency figures as well as personal bankruptcies, particularly individual voluntary arrangements (IVAs).”

“The difference between businesses that survive and thrive and those that fail is how well they manage difficulties. Whilst a percentage of insolvencies is unavoidable, many cases are not. Owner/managers must know where they are on the decline curve – help must be sought early as they move beyond underperformance into a period of stress before they reach crisis point. If they do so, it is possible to move away from insolvency, towards crisis management, stabilisation and finally onto recovery.”

National Chairman Mike Cherry, Federation of Small Businesses (FSB) said “Today’s insolvency figures are a real concern and our research shows a record number of small business owners looking for an exit. One in seven entrepreneurs expects to sell, hand-on or close their business in the first quarter of 2018.”

“Inflationary pressure, disappointing domestic growth and flagging consumer demand are all weighing on the small business community. The proportion of small firms reporting a rise in operating costs is now at a five-year high. It’s an increasingly unforgiving environment to trade in and we’ve seen business confidence dropping steadily over the past year”.

“What these figures don’t reflect is the impact that the demise of Carillion is having on supply chains across the UK. We are working closely with the taskforce set-up to mitigate that impact and hope to see as many contracts reassigned as possible over the coming months. Sadly there will be jobs lost and firms forced to close as a result of the misjudged procurement choices and appalling late payment practices that preceded Carillion’s collapse.

“If the Government wants to see insolvency numbers fall in 2018, opening up more public contracts to small firms and making a reformed Prompt Payment Code mandatory for large corporations would be a good place to start.”

Graham Bushby, Head of Restructuring at RSM said: ‘It’s notable that both corporate and personal insolvencies increased in 2017. In a sense, this is no great surprise – not least because of the uncertainties in the global economy and notably Brexit. As we get closer to the EU exit door, it’s hard to see confidence increasing and distress levels could go up, particularly if we see further rises in interest rates.

‘What’s hidden in the numbers is the impact of one-off events such as the collapse of Monarch or Carillion. These can send shock waves across entire industries and their supply chain, resulting in cashflow emergencies. Such events can ultimately lead to failure if urgent action isn’t taken to stabilise the position. In 2018, business owners will need to be ever more vigilant and keep a close eye on all vital signs.”

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