Corporate insolvencies on the rise

Following the latest Q3 insolvency statistics released last week, we have compiled the following summary: 

The underlying number of insolvencies increased in Q3 2018, both on the previous quarter and the same quarter in 2017. This was driven by a rise in underlying creditors’ voluntary liquidationswhich increased to their highest level since Q1 in 2012. The total number of company insolvencies increased by 8.9% overall compared to Q2 of this year.

If we look more forensically, 71.6% of all company insolvencies were creditors’ voluntary liquidations. The number of CVLs in Q3 2018 was actually 20.7% higher than Q2 2018. Whilst administrations also rose sufficiently for this quarter, the number of compulsory liquidations dropped slightly, by 2.5% on last quarter, whereas CVAs and Receiverships remained constant.

The construction sector led the way as the industry with the highest number of insolvencies in the 12 months ending Q3 2018. The number of company failures across the UK construction industry actually increased by near 80% in Q3 2018 compared with Q3 2017. This could be due, in part, to the fact that the level of bad debt which was owed to suppliers increased by 27%, and the number of county court judgements in the last quarter increased by 38% year on year. Cash flow problems are clearly rife as well as the rising cost of materials.

In contrast to corporate figures, the total number of individuals who entered a formal insolvency process fell last quarter from a six-year high seen in Q2 2018. This was driven by a decrease in IVAs, although it still made up 55.8% of the total registered individual insolvencies for the quarter.

Bankruptcy levels were slightly up on Q2 by 1.7% and 12% higher than in the same quarter of last year with Debt Relief Orders up on Q3 2017 by 11.5%. Interestingly, in the 12 months ending Q3 2018, 1 in 434 adults entered insolvency in England & Wales, which emphasises how challenging the current economic climate has been to those struggling to financially get by each month.

The reduced number of individual insolvencies from last quarter, may on the face of it look like the very early signs of financial stability in UK households but the overall trend over the past two years has been one of steady growth. Factor in the continued economic uncertainty (heightened more so with Brexit), the mortgage rate rises and unprecedented levels of unsecured debt increases, it is hard to see this truly reversing.