Insolvency Statistics: October to December 2017
Early on 26 January 2018, the UK’s Insolvency Service released the insolvency statistics for October to December 2017.
This document shows that the overall number of company insolvencies increased during the final quarter of 2017, and there was a significant increase in Creditors’ Voluntary Liquidations (CVLs) during that time. However, bulk insolvency events did play a substantial role in boosting those figures.
Here, we’ll look at these insolvency statistics in detail and suggest what this might mean for companies in 2018.
The official document includes information on both individual and company insolvencies, we will be focusing on the latter.
Summary of insolvency statistics for Q4 2017
The majority of company insolvencies in England and Wales during Q4 2017 involved CVLs.
In fact, of the 4,382 companies that entered insolvency in Q4 2017, 3,414 (78%) were through CVLs.
The total rate of insolvencies grew due to a bulk insolvency event, and there was a 7.3% increase from Q3 2017.
This event pushed an estimated 1,000 connected companies into insolvency following changes to claimable expense rules.
Excluding this event, the underlying number of company insolvencies actually fell by 17.2% compared to Q3 2017 and 10.9% compared with the same quarter in 2016.
There was also a fall in the number of underlying CVLs. The rate fell by 20.3% compared with Q3 2017. Compulsory liquidations also fell (8.1%), though other insolvencies remained stable.
What do these insolvency statistics reveal about 2017?
As the insolvency statistics are available for the last quarter of 2017, we are now able to analyse the insolvency rates of the year as a whole.
Throughout 2017, the number of company insolvencies increased by 4.2%. An estimated total of 17,243 companies entered insolvency in 2017.
Several ‘bulk insolvency’ events (where large numbers of connected companies enter insolvency following industry/legal changes) drove this increase. Estimates state these account for approximately 2,131 of the total.
Excluding these events, 15,112 companies still entered insolvency. This represents a 2.5% increase on 2016, and was caused by a 6.3% rise in the underlying number of CVLs.
CVLs were a popular method for resolving insolvency in 2017. Of the 17,243 insolvent companies, 12,861 used CVLs, making up 74.6% of total insolvencies. This constitutes an annual increase of 8.2%.
The year-end liquidation rate was 0.47% of active companies; the same as for 2016.
What does this mean for businesses in 2018?
The rise in the number of companies entering insolvency in 2017 should concern all directors. It is difficult to pin one cause on the slight rise but many commentators have pointed the finger at Brexit, higher inflation and rises in minimum wage. It is often just change that triggers companies to become insolvent and when economies are growing there can be in fact be more insolvencies. The global economy is growing strongly but there is no doubt that retailers have felt the effects of changes and changing customer habits the most with a slew of retailers reporting problems.
2017 saw several bulk insolvency events, where a group of companies were affected by one change in the industry. Directors must prepare for such events and be aware of how other businesses could affect their companies. The liquidation of Carillion, for example, may spark a similar event. It will be interesting to see if it does have an effect on the statistics in the first quarter of 2018. So far it seems that the bigger contractors have absorbed some of the impact so far.
The increase in CVLs and the decrease in administrations suggest that members are more inclined to liquidate companies and start afresh in this new economic climate.