In Focus Commercial Credit


Facing the facts


Last month the figures for consumer and commercial insolvencies were published, as the industry faces proposals on increased Crown preference


Duncan Swift President, R3


Last month, the fourth quarter 2019 (October to December) insolvency statistics for England and Wales were published by the Insolvency Service.


Corporate insolvencies The figures are a reflection of anaemic economic growth throughout 2019. A number of factors have fed into this: political uncertainty, particularly around Brexit, has held back business decisions and investment, but weaker consumer confidence and sector-specific issues cannot be discounted either. Business confidence fell last year


compared to the previous 12 months and hiring confidence hit a seven-year low at the end of December. Alongside this, economic growth stalled, consumer debt increased, and consumer confidence remained low throughout 2019. Many companies also had higher wage


bills to contend with, due to rises in 2019 in minimum and living wage levels, and increased employer contributions to auto-enrolment pensions. Some sectors have been hit harder than


others, although difficulties are increasing across the board. The construction sector struggled, traditional retailers were hit by declining footfall and the continued growth of online shopping, and the manufacturing sector had a worse year than 2018. Brexit- inspired stockpiling in 2019 may have added to disruption. Every quarter in 2019 saw more corporate


insolvencies than the corresponding quarter in the previous four years. In terms of these figures, numbers of


administrations, a procedure designed to support business restructure and rescue,


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have increased by 24% compared to 2018, and are at their highest since 2013. However, liquidations have been rising,


too. For some businesses at the moment, rescue is not possible, although insolvency practitioners will be doing their best. It is not an easy climate for doing business out there. Overall, 2020 will be a key year for UK


businesses. A government with a decisive majority ends some domestic uncertainty, although there are still big question marks around what Brexit will actually look like – and exactly when new rules will kick in. Wider economic performance will partly


determine whether the recent trend of rising corporate insolvencies continues or not. On the plus side, signs are that businesses are looking to increase investment and recruitment this year, so there is cause for optimism. Looking ahead, one additional factor


which may affect insolvency numbers in the first and second quarters of 2020 is the government’s plan to make HMRC a ‘preferential creditor’ in insolvencies from April. This will benefit HMRC at the expense


of lenders, customers, and suppliers, and will hurt business lending. Some businesses could be pushed into


insolvency due to a reduction in their lending facilities. These insolvency figures should be a


wake-up call to any director of a company which is finding it hard going at the moment.


Personal insolvencies Personal insolvency numbers in 2019 were the highest they have been since 2010. This,


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Some sectors have been hit harder than others, although difficulties are increasing across the board. The construction sector struggled, traditional retailers were hit by declining footfall and the continued growth of online shopping, and the manufacturing sector had a worse year than 2018. Brexit-inspired stockpiling in 2019 may have added to disruption


then, reflects a tough year for personal finances. Individuals have benefited from low


inflation, real wage increases, and record employment levels, but this has been counter-balanced by rising consumer debt and the fact that not all employment is secure. For the most financially vulnerable, the problems with the benefits system have been well-publicised. Finances are stretched for many, and


financial resilience is low. It does not take much of a shock – a missed benefit payment, an unexpected bill, or a reduction in hours – to cause financial problems. Real wages are rising, but having fallen


for so long before that it is a bit too late for some, while wage increases will not be evenly distributed.


February 2020


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