Businesses going bust increases to 6 year high and Brexit hasn't helped

The Insolvency Service has released its annual figures on business insolvencies showing corporate insolvencies in 2019 rose by 6.8% from 2018. That means there were over 17,000 business going bust in 2019, the highest number since 2013.

Creditor Voluntary Liquidations were at their highest annual levels since 2009 and administrations also increased last year compared to 2018. Both of these processes are normally started by the company in question.

These figures are a reflection of poor economic growth throughout 2019 and a number of factors have led to this, political uncertainty around Brexit, held back many business decisions and investments. Lower confidence by consumers and industry-specific issues were also contributing factors. Reduced hiring, wide-spread redundancies, increased consumer and company debt all paid into these all time 2019 lows.

Many companies also had higher wage bills to contend with as a result of the rises in minimum and living wage levels and increased employer contributions together with workplace pensions hit business cashflow hard.

Duncan Swift, President of insolvency and restructuring trade body R3, said, “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.”

He added that, “Every quarter in 2019 saw more corporate insolvencies than the corresponding quarter in the previous four years. In terms of today’s figures, numbers of administrations, a procedure designed to support business restructure and rescue, have increased by 24% compared to 2018 and are at their highest since 2013. Liquidations have been rising, too. For some businesses at the moment, rescue isn’t possible, although insolvency practitioners will be doing their best. It’s not an easy climate for doing business out there.”

The experts are now predicting that 2020 will be a key year for UK businesses. Now that the UK Government has decisive majority will end much domestic uncertainty, even though nobody really knows what Brexit will actually look like or when new rules will start. Economic performance will also help to determine whether the recent trend in increased corporate insolvencies continues or not. Some economic analysts have also seen signs that businesses are looking to increase investment and recruitment this year, which are all positive steps of expansion rather than contraction.

However, one major contributing factor that may affect insolvency numbers the first half of 2020 is the Government’s plan to make HMRC a ‘preferential creditor’ in insolvencies from April. This means the HMRC will benefit at the expense of other creditors and will hurt business lending figures. Some businesses could even be pushed into insolvency due to a reduction in available lending facilities.

These insolvency figures are very troubling and should call out to any business owner finding it hard at the moment to seek advice from a qualified, professional financial planner, and the sooner the better. Creditors are waiting for company directors to take action themselves through a Company Voluntary Liquidation or through administration when the going gets tough and we have seen this trend across all sectors in the last 18 months, particularly in the food industry.

Business Insolvencies can also be expected to continue to rise in the UK throughout 2020 following Brexit, according to predictions by financial experts.

Insolvencies in the UK have been increasing steadily since 2018. The retail sector particularly continues to face more turbulence with firms going bust as a result of reduced consumer confidence and the changing dynamics within the industry. Companies are very much dependent on seasonal sales (Christmas, Boxing Day, Easter, Black Friday), and especially rely on December sales to improve sales performance. According to the industry body the British Retail Consortium, the total sales across the retail industry fell in November and December 2019.

For those British sectors who are dependent on imports, in particular food and farming, Brexit remains a huge problem with the threat of higher import and operational costs which businesses could struggle with financing. The construction industry has already been hit significantly by lower investment and the ongoing threat of higher costs in order to attract workers. So true is the impact from the loss of skilled workers from EU nationals working in the UK who are returning to their countries of origin, again, due to the threat of the unknown, scaremongering and prejudice from UK-born hacks, will continue to increase the risk of companies going under.

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