The end of January saw the release of the Q4 2018 insolvency statistics, published by The Insolvency Service. According to the release, the year closed with the highest number of insolvencies in 12 months since 2014. The numbers have been creeping up year on year; each year since that low point in 2014 has seen an increase on the previous year and all of the research from the credit insurers shows that 2019 insolvencies are expected to be up on 2018.
The sectors currently seen as the highest risk are construction, retail and food & drink though manufacturing and pharmaceuticals are facing huge uncertainty as Brexit looms. Both Kier and Laing O’Rourke – two powerhouse businesses of the construction sector – referred to difficulties in securing bank funding for construction companies. Construction is around 7% of UK GDP.R3 – the association for business recovery professionals – finds in its latest survey that 11% of businesses fall into the category of a ‘zombie business’, paying only the interest on their debts and not the debt itself. These businesses are at high risk of failing during periods of uncertainty.
Other interesting numbers from that same survey; 16% of businesses are currently negotiating payment terms with creditors 12% are struggling to pay debts when they fall due 8% would struggle to repay debts if the interest rates increased by more than a little over current ratesThe other concerning trend around recent insolvencies is that it’s increasingly difficult to spot the likely failures.
The Channel Partnership routinely analyses the last filed accounts of recently failed companies and these are often now showing an apparently healthy position right up to the time of insolvency. Companies certainly seem to be reacting to this uncertainty as the levels of credit insurance enquiries are reportedly increasing – some insurers reporting new enquiries up by around 20% on the same time last year. However, there is only limited capacity so many of these new enquiries may find difficulty in securing the cover they are looking for.
In summary, the latest figures from The Insolvency Service show that in England and Wales:
• A total of 4,725 companies entered insolvency in Q4 2018, an increase of 9.3% compared to Q3 2018
• Excluding bulk insolvencies, there were 3,949 company insolvencies, a decrease of 8.6% from the previous quarter
• CVLs fell by 12.7% on the previous quarter while compulsory liquidations increased by 9.3%
• Excluding bulk insolvencies, 1 in 242 companies entered liquidation in Q4 2018, which is slightly up from 1 in 244 in Q3.