Q1 2019 insolvency statistics – R3 response

Commenting on the Q1 2019 (January-March) England & Wales insolvency statistics (published this morning by the Insolvency Service), Stuart Frith, President of insolvency and restructuring trade body R3, says:

Corporate Insolvencies

  • Underlying corporate insolvencies rose by 6.3% in Q1 2019 compared to Q4 2018, and rose by 5.1% compared to Q1 2018.

“Today’s underlying insolvency figures – the highest first quarter figures since 2014 – reflect the impact of stuttering consumer confidence and, to a degree, Brexit uncertainty on the business community.

“The first three months of each year are where we typically see the consequences of missed targets in the run-up to Christmas and the end of the year, particularly in the retail sector. The pre-Christmas period can be make or break, and Christmas 2018 was particularly tough.

“The factors which have been pushing insolvencies up over the last year or so haven’t gone away. Consumer confidence is low and consumers’ spending power is much diminished. Meanwhile the High Street is facing serious structural challenges as it comes to terms with changing consumer habits and online competition. Many consumer-facing businesses, in particular those in the retail sector, have exhausted their ‘standard’ toolkit for coping with reduced demand: further discounting won’t cut it, or is impossible, and a restructuring is the only option.

“Struggles in consumer-facing sectors have a significant knock-on effect elsewhere, too. Every retailer is part of a wider network of businesses, from logistics firms to shop-fitters. No sector operates in isolation.

“Businesses have also faced uncertainty around Brexit and the future of the UK’s trading relationship with the EU. This was particularly acute in the first quarter of this year as we approached the original ‘Brexit Day’ on 29 March. No Deal preparations put pressure on businesses to stockpile goods and materials, in turn putting pressure on their cashflow. Meanwhile, businesses reliant on EU trade saw orders and investment stall.

“Over the last year, R3’s members across the UK reported that demand for their services – from advice on turnaround and restructuring processes to formal insolvency procedures – increased, and this has carried over into the start of 2019. We would encourage directors of companies who concerned about the current market conditions to seek advice from a knowledgeable and qualified professional source. The earlier they do this, the more options they will have for helping their company improve its performance.”

Personal Insolvencies

  • Personal insolvencies fell 8.1% from Q4 2018 to Q1 2019, but are 15.9% higher than in the same quarter in 2018.

“A quarterly fall in insolvency numbers was almost inevitable given the one-off size of the increase at the end of last year, although we still have levels of personal insolvency last seen almost a decade ago.

“It’s really important to remember, however, personal insolvency numbers don’t necessarily tell us how many people are insolvent, but rather how many people are able to access a personal insolvency procedure to resolve their debts.

“The most common form of personal insolvency procedure, an Individual Voluntary Arrangement (IVAs), is an effective means of dealing with unsustainable consumer debts. Changes in IVA numbers can be driven by changing consumer debt levels, but they can also be driven by the type and amount of IVAs which providers are able to support.

“Better indicators of serious indebtedness are the numbers of bankruptcies and Debt Relief Orders. These processes help people who are unable to make almost any kind of contribution to repaying their debts, and have been slowly creeping up over the last year.

“Although raw numbers of bankruptcies and DROs have dipped slightly, the rate of these procedures – the number of procedures per adult – actually increased slightly or held steady. These increases are a reflection of the fact that the UK’s personal finances are not in a healthy place. Although unemployment levels remain low, and real wages are starting to rise once more, there has been a long, long squeeze on personal finances which won’t be rectified overnight.

“Real wages are lower now than they were before the financial crisis, while, for many, gaps in income have to be plugged by debt rather than savings. Similarly, consumer spending is increasingly focused on covering basics, not on luxuries or retail spend.

“The latest figures underline the scale of the financial problems facing many people. Anyone worried by their debts should seek non-judgemental, expert and professional help to explore their options as soon as possible.”