Sharp rise in insolvencies but why?

Sharp rise in insolvencies but why?

In a recent report the Exaro index, an analysis of insolvency data from the gazettes has found a rise in insolvencies in Q3 of 2014 with an exceptionally mixed picture. Overall there has been a rise in companies filing insolvency notices with an increase from 2488 to 2632 year in year or 5.8%. Some sectors appear to be doing much better with a decrease in insolvencies whereas in contrast others have seen a significant rise.

Overall the monthly picture appears to be better with a reduction in the amount of businesses going through the insolvency process in October with 198 firms compared to 293 failures in the same period last year. The quarterly figures show a similar overall picture with 802 insolvencies compared to 540 in 2013.

However when the figures are looked at in more detail the picture becomes a little more complex. Retail businesses saw a worrying increase in insolvencies suggesting that the sector is yet to benefit from any signs of economic recovery. Whilst it is a traditionally quiet time for retail the approaching holiday season is the biggest sales point of the year and some businesses could have expected to have a stay of execution in anticipation of a busy Christmas.

The Accommodation and Food service sector has also been particularly badly hit with a 28% increase in insolvency notices year on year. The British Hospitality Association has said that this is due to the unusually large number of start-ups in the sector. A spokeswoman said “There are many entrepreneurs who like to try their hand in hospitality. It is good that people with new ideas come into the sector, but of course sometimes things are not going to work out”

The discretionary nature of consumer spending in this area is also thought to be a factor, with the sector being the first to feel any tightening of spending power.

IT services companies have also suffered with the quarterly increase in insolvency of 32%. Some commentators suggest that this is for similar reasons to the hospitality sector being a large number of entrepreneurial start-ups. IT companies are often 1 or 2 man operations and can suffer from both a downturn in the economy but also upturns where self-employed individuals are offered attractive permanent in house positions.

The mixed picture continues with the construction sector showing consistent monthly falls in insolvencies until this month where the trend reversed with an 8.8% rise although there appears to be marked regional differences. Alongside this the wholesale sector has shown a strong reduction in business in trouble. The number of winding up petitions has been increasing in the grocery and convenience sectors with the strengthening of competition amongst the larger players causing problems further down the chain. Smaller butchers, grocers, wine merchants and convenience stores have been suffering as a result.

The increase in insolvencies may not be over either. As we emerge from recession it is likely that interest rates will rise and those businesses that have over borrowed thinking that low interest rates are permanent will be vulnerable.

Overall given the confusing nature of the data for the last quarter, it is difficult to draw any firm conclusions as to the reasons why. Clearly there are signs of recovery within some sectors however where one area shows an improving picture another begins to slip back. The message to company owners has to be to keep a tight ship, remain flexible and continue to monitor the data as it appears we are not out of the woods yet.

Leave a Reply

Your email address will not be published. Required fields are marked *