In Focus Collections


Nervous times on insolvencies


Analysis of the latest government statistics shows that problems may be hiding behind personal and business insolvency numbers


Stuart Frith President, R3


Last month, the fourth quarter (October to December) 2018 insolvency statistics for England and Wales were published by the Insolvency Service.


Corporate insolvencies Excluding one-off ‘bulk insolvency events’, seasonally adjusted corporate insolvencies in 2018 rose 10% from 2017. Excluding these one-off events, there were 16,090 insolvencies in 2018. Seasonally-adjusted corporate insolvencies


fell by 9% in the fourth quarter of 2018 compared to the third quarter, but rose by 11% compared to the fourth quarter of 2017. After three years of relatively flat numbers,


2018 saw insolvencies creep back up to levels last seen in 2014. The pressure point for businesses most frequently cited by our members is weak consumer demand. People just do not have much spare cash


at the moment, reflected in the rise in the number of personal insolvencies also confirmed in the Insolvency Service’s statistics. Although recent government figures


showed that the weekly amount spent by households has hit its highest level since 2005, much of that expenditure went on housing and transport, with less left over for consumer outlay. This is having a big impact on consumer-


facing businesses, such as retailers and the restaurant sector. This also spells bad news for businesses at


one remove from the consumer, such as manufacturers supplying consumer products, shop fitters, or logistics firms. Every business is part of a network and


one struggling business will affect others. Our research from the middle of last year found that one in four UK companies had taken a financial hit following the


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insolvency of a supplier, customer, or debtor in the previous six months, illustrating the reach and impact of the ‘domino effect’. Meanwhile, uncertainty around the shape


of the final Brexit deal and future EU-UK trading relationship is already forcing businesses to hold off on investment decisions, again affecting their suppliers and customer networks. It has also prompted some companies to stockpile, putting a squeeze on cashflow and reserves.


Public-service provision An area to watch in 2019 will be public- service provision. Businesses, social enterprises, and charities in the health and education sectors are being hit by a double whammy: government funding or subsidies are being cut, while these sectors are also expected to pick up the slack for work that the public sector does not have the resource to carry out anymore. Government proposals to give itself


priority status for repayments in insolvencies may well have a negative impact on the ability of small businesses to finance themselves this year. With uncertainty in the supply chain,


many businesses will be seeking to increase their stock levels to counteract this and will require new finance to do so. But if funders are concerned that the government will take a bigger cut if things go wrong, then lending decisions become much harder.


Personal insolvencies In 2018, there were 115,299 personal insolvencies, an increase of 16% on 2017, and the highest annual total since 2011. Personal insolvencies rose 35% from the


third to the fourth quarter of 2018, and are 35% higher than in the same quarter of 2017.


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Meanwhile, uncertainty around the shape of the final Brexit deal and future EU-UK trading relationship is already forcing businesses to hold off on investment decisions, again affecting their suppliers and customer networks. It has also prompted some companies to stockpile, putting a squeeze on cashflow and reserves


Personal-insolvency numbers have been


rising steadily every year since 2015, and 2018 was no exception. As banks and other lenders have tightened


their credit standards in response to the Bank of England’s concerns around consumer overindebtedness, many people have run out of road. In previous years, the ‘helicopter money’


provided by PPI refunds, along with generally less stringent lending requirements, helped to paper over the cracks that opened up as a result of a decade of persistently stagnant wage increases, but these avenues look to be closing themselves off. People are having to spend more of their


income on housing and transportation, leaving less left over for savings and making budgets more vulnerable to shocks. It is notable that bankruptcies and debt-


relief orders (DRO) have risen over a year in which, if you look at the headline figures, England and Wales enjoyed record low levels of unemployment, which is something normally associated with fewer insolvencies.


March 2019


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