The Insolvency Service has just released its latest quarterly statistics, which indicate that the corporate insolvency rate is increasing for the third successive quarter
Find out how insolvency rates have changed since last quarter and what wider industry factors are pushing up rates of insolvency.
Corporate insolvency in Q1 2017
During Q4 2016, 1,796 interconnected personal service companies entered liquidation on the same day.
This was due to changes in the rules surrounding claimable expenses and led to figures from the quarter becoming distorted.
However, even with these companies removed from the equation, corporate insolvencies in Q1 2017 are still up by 4.5%. This represents a 5.3% year-on-year increase.
See below a full analysis of insolvencies in the last year 2016 broken down by sector;
*Graphs courtesy of HMRC
Construction has always had higher than average insolvency rates due to the nature of the business and rising costs. But in the last few months there have been rising levels of insolvency as they have faced difficulties with labour costs and uncertainty with projects.
Wider factors affecting insolvency rates
Insolvency rates generally stayed level throughout 2016, having decreased incrementally to almost record lows from the peak that followed shortly after the financial crisis.
This strengthening of commercial activity was most likely driven by a combination of:
- Low interest rates
- Creditor forbearance
- Strengthening economy
- But, these latest statistics suggest this trend is starting to reverse. A number of factors have played a part in this transition, including:
- Importers beginning to feel the effects of a falling pound
- Unwinding of currency hedges used to shield companies from the immediate after-effects of the EU referendum
- Commencement of the National Living Wage
- Introduction of pension auto-enrolment for SMEs
Business rate changes might well pose an additional challenge for business owners, especially in London and the South East. Even with last-minute amendments, this change looks set to have a pronounced, negative impact on businesses.
Putting these figures into context
Despite these hurdles, an increase in insolvency rates is relatively typical in Q1.
A significant portion of companies conclude their financial year during the first quarter. At this point, a combination of factors can lead business owners to make a tough decision and wrap up their operations.
Following the in-depth analysis that often occurs at a company's year-end, business owners may find that the financial health of the business isn't quite what they had expected.
They may also be aware of potential challenges in the year ahead. This could be something relating to their business specifically (such as an upturn in the price of resources), their sector or business type.
Whether the latest figures represent a trend or seasonal anomaly won't become clear for some time yet.
However, from our experience it does look like that there has been a hardening of creditors attitudes in the last few months, with HMRC in particular, issuing more winding up petitions.
Find out how the latest figures measure up against Q4 2016 and check back for regular updates on insolvency, turnaround and corporate recovery.
If you are worried that your business is heading towards insolvency, get expert advice from Company Rescue.