The number of business insolvencies rose again in the third quarter – with business rates, uncertainty over Brexit and traffic congestion being partly to blame, according to the insolvency and restructuring trade body R3.
The latest official figures show the underlying number of corporate insolvencies rose by 9% compared to the previous quarter and 19% compared to the same period last year. In total 4,308 companies became insolvent during the quarter.
Paul Barber, North West Chair of R3 and a partner at Begbies Traynor, said it was the first time that corporate insolvencies had passed the 4,000 marks in one quarter since the start of 2014. “So far, 2018 has been a tough year for businesses, with insolvency numbers equal to or much higher in every quarter than in the same period last year,” he said.
“The key causes seen by the insolvency profession are familiar. Rates problems, particularly for retailers, are frequently mentioned and the rates relief announcements in the Budget have come too late for some. High-profile insolvencies can have a knock-on effect, too. For every struggling retailer unable to pay its debts, there will be numerous suppliers, shop-fitting or delivery firms which come under pressure. There have also been well-publicized troubles in sectors like construction.
“R3 members have picked up on a number of extra concerns recently. Uncertainty over the shape Brexit will take has led to decision-making delays at some large companies, which will have had an impact on their smaller suppliers expecting new contracts or investment. And traffic congestion is hurting companies in terms of loss of productivity, especially those based in or delivering to city centers such as Manchester, Liverpool, and Preston.”
“The outlook for businesses is still difficult. Negative consumer confidence, high personal debt levels, renewed upwards pressure on wages, and possible future interest rate rises will all have to be navigated.”
He urged struggling firms to seek professional advice at an early stage but warned against using unscrupulous advisers offering unworkable solutions. “We would advise checking the credentials of all sources of advice, and sticking to advisers who are regulated, licensed, and accountable.”
Personal insolvencies
Individual insolvencies fell by 11% from the previous quarter – when they had reached a six-year high – and by 2% in the same quarter in 2017. The figures show there was a decrease in Individual Voluntary Arrangements (IVAs) but a rise in Debt Relief Orders and bankruptcies.
Paul Barber said that Debt Relief Orders, which help those unable to pay even very low value debts, and bankruptcies which tend to be used when there are significant debts, tend to be a better indicator of serious indebtedness than IVAs, which are useful for repaying consumer debts, but whose numbers can be affected by changes in the debt management market.
“A decade of non-existent or sluggish real wage growth has clearly had an impact on people’s finances,” added Paul. “Low unemployment levels are a bright spot but are only half the picture when work doesn’t pay enough to cover even the basics. There are signs that more and more people are hitting the limit of what their budgets can stretch to. The cumulative effect of rises in the cost of groceries will have hurt those on low incomes the most and might explain the gradual rise in Debt Relief Orders.
“Anyone who is concerned about their personal financial situation should talk to a regulated, qualified, and professional advisor. There are lots of good sources of free, unbiased advice out there, and we urge all those who are worried to seek out support as soon as possible.”