Corporate and personal insolvencies on the rise

Figures released via the Insolvency Service last week show that the number of companies entering formal insolvency processes in England and Wales has reached its highest levels in four years.

A significant contributor to this rise was the number of underlying CVLs and Compulsory Liquidations registered, with a 7.8% increase in CVL figures and a 26.3% rise in Compulsory Liquidations in Q4 2017. 

Sifting through the figures further, you will notice that the underlying number of overall corporate insolvencies, excluding the effect of bulk insolvencies, (classified as the liquidation of personal service companies following changes to the claimable expense rule) was up by 13% on the previous quarter, as the construction industry once again shows the highest fatality figures in the 12 months entering Q1 2018.

The knock-on effect of the Carillion collapse at the start of the year is sure to have had an impact, however, the construction sector has been struggling for some time now. Increases in labour and material costs have certainly not helped with growth, let alone stability.

Following a rise in the base rate back in November (the first in 10 years) the increase in corporate failures is not entirely unexpected. There is the suggestion that there could be a further rise this month following last month’s Bank of England vote.

You add into the mix the uncertainty surrounding Brexit negotiations and future trade agreements, the overall higher business rates heavily impacting SME businesses and the changing attitude from lenders to offer further credit; you have a recipe for financial struggle for corporates across various sectors.

Flipping across from corporate figures to that of individual insolvencies, we can see a five year high in the first three months of the year with a total of 27,388 people going insolvent - the highest number since Q3 2012 and an overall 6.8% rise on the previous quarter. A fair chunk of these numbers can be attributed to the level of IVAs recorded with 16,676 arrangements made in Q1.

Much has been written in recent months about the difficulty that some UK households have had when it comes to budgeting income following various rises to everyday living costs, when coupled with the continued availability of affordable credit, this result of higher individual insolvencies is hardly a surprise.

Wages have started to rise and employment rates are higher than they have been for some time, however, these Q1 figures are likely to reflect those who have been directly affected by prolonged periods of stagnated pay which will have been outstripped by inflation. 

It is hard to see the current course changing any time soon despite improvements to the overall UK economy. Should the Bank of England increase the base rate later this month, then even the slightest change could have quite an impact on what is clearly a vulnerable market for many of those with financial struggles.