Following the official insolvency figures for the fourth quarter 2018, Brian Johnson, business recovery and insolvency partner at H W Fisher & Company comments:
“The reality of Brexit, and the economic uncertainty caused by it, is beginning to bite. That much is clear from the latest insolvency figures. Until there is a greater certainty about Britain’s future, businesses and households will continue to suffer.
“Company insolvencies – when bulk insolvencies from 2017 are excluded, an aberration caused by the mass closure of personal service companies – rose 10% in 2018 compared with a year earlier and to the highest level since 2014. The economic uncertainty caused by Brexit will be responsible for a great deal of these insolvencies.
“Large companies are withholding investment decisions, which is already having a significant detrimental impact on smaller companies further down the supply chain. There is plenty of evidence of this happening in both the retail and construction sectors. Moreover, a lot of larger retailers and construction firms are stretching payment terms to the limit, heaping even more pressure on their suppliers. A disorderly Brexit will only exacerbate these issues meaning more companies are bound to go to the wall.
“The increase in Company Voluntary Arrangements (CVA) is also a significant concern with the rise in CVAs likely to have been driven by the retail sector last year, which faced a perfect storm of reduced consumer spending, internet shopping, an interest rates rise and minimum wage increase.
“Meanwhile, the rise in compulsory insolvencies of companies of 11.1% in 2018 compared with a year earlier highlights just how many companies were on life support throughout the last couple of years. The Zombie companies, so often spoken about over the last few years, are now being washed out of the economic system.
“But just as worrying is the large increase in individual insolvencies, up 16.2% in 2018 compared with a year earlier and to their highest level since 2011, while Individual Voluntary Arrangements (IVA) rose 19.9% to their highest ever level, showing just how much pressure households are already under.
“That pressure has already has a significant impact on consumer spending habits which is one of the reasons why retailers have suffered so greatly in the past year. Given the level of household indebtedness any increase in interest rates in the near term is likely to push these insolvency figures through the roof.”