Every quarter The Insolvency Service produces a set of statistics covering the number of companies that fail and the latest set, covering 2017 make interesting reading. This year already we’ve had some high profile insolvencies and administrations that have hit the news with Toys R Us, Maplin and Carillion all hitting the headlines and it’s probably worth looking back to see if these are unusual or part of a wider trend.
The insolvency statistics are split into England and Wales, Scotland and Northern Ireland sections are given their differing regimes regarding insolvency and in some cases, the number may not be directly comparable but will give an overall view of the situation.
Overall, in 2017 company insolvencies in England and Wales rose by 4.2% on 2016 to 17,243. Whilst this is by no means of the order of the dark days of 2009 when around 24,000 companies per year were going bust it still continues an upward trend of the last three years.
The number isn’t quite as bleak as it would appear at first, however. Hidden in amongst those are bulk CVLs which seem to be as a result of changes to the claimable expense rules meaning that the adjusted amount of insolvencies stands at 15,112 although this is still a year on year rise of 2.5%.
By far the greatest number (12,861) of insolvencies are Creditors Voluntary Liquidations or CVLs. Although CVLs have always outstripped compulsory liquidations it is heartening to see the gap continue to widen as it has for a number of years. This suggests that company directors are taking their responsibilities seriously when it comes to insolvency.
The greater use of CVL would give backing to the feeling that the legislative changes made to the responsibilities for directors over the years are beginning to bear fruit and the hope is that the UK is gaining a much more professional and responsible cohort of company directors.
In Scotland, a corresponding rise in the numbers was experienced with 207 company liquidations, a 4.5% increase on 2016. The split is reversed North of the Border with Compulsory Liquidations being more prevalent than Voluntary action.
Whilst the picture for companies is of a rising trend in insolvencies, in contrast, the trend for self-employed individuals is reversed. The number of self-employed people filing for bankruptcy has been falling since Q1 2015 and in 2017 there was an estimated total of 3400 down from 3700 in 2016.
There is an argument that with largely full employment in the UK, self-employed individuals are also experiencing an increase in profitability meaning that the number of insolvencies decreases.
Across the sector types, there is no clear pattern emerging. Once again construction, Car dealers, Transport and food are all once again large parts of the insolvency picture but no one sector appears to be suffering more than others.
There is widespread concern that the UK has lived in a ‘debt bubble’ over the last decade with record low-interest rates continuing for a record period of time.
This has encouraged businesses and individuals to take advantage of the low rates by borrowing to invest and once rates go up there will be a surge in insolvencies.
This last quarter has seen the first rate rise for many years albeit a very low one and analysts suggest that this is merely the start of a gradual rise to more normal rates. It will be interesting to see if this results in the predicted insolvency and liquidation rates or if companies have borrowed wisely.
Environmental scanning is always useful for companies to understand what is going on in the wider business community and the insolvency statistics can give directors a method of spotting where problems are starting to occur.
In summary, the latest set of insolvency statistics present a fairly rosy picture of an economy that has seen reducing actions for a number of years. A weather eye will need to be kept on the latest rises to make sure that these are just a blip and not the start of a rising trend over the next cycle.