Corporate insolvency levels hit five-year high

Insolvencies in second quarter driven by rise in creditors' voluntary liquidations

Company insolvencies hit a five-year high in the second quarter of this year, according to the Insolvency Service of England and Wales.

Underlying corporate insolvencies totalled 4,321 for the three-month period ending in June, which represented a 2.6 per cent quarter-on-quarter increase and an 11.9 per cent jump on the same period last year.

This is the highest underlying level of insolvencies in any quarter since Q1 2014, the authority said.

It was driven by a surge in creditors' voluntary liquidations (CVL), which rose nearly seven per cent compared with the first quarter of 2019.

Duncan Swift, president of insolvency and restructuring body R3, said that the figures are evidence that UK businesses are going through a difficult time, adding that tighter constraint on consumers and Brexit uncertainty are "key factors" in the challenging climate.

"Questions around what Brexit really means have hit investment and growth levels, and led to a degree of economic stagnation," he said.

"In addition to this, consumer confidence is low, as people worry about the weeks, months and even years ahead. This may mean consumers are only buying what they need.

"Businesses in a variety of industries are struggling right now.

"Retailers are suffering as the world in which they operate changes and more people shop online. Manufacturing output and confidence is low. Private and business car sales are down.

"And businesses which stockpiled items ahead of the original Brexit deadline of 29 March will now be seeing those decisions have an impact on their cashflow levels. Simply put: it's an uncertain, difficult time to be in business right now."

All other types of corporate insolvencies fell in Q2, including compulsory liquidations which fell by just over four per cent quarter on quarter.

There were 400 administrations in Q2, which was an 11.4 per cent fall from a five-year high in Q1 2019. However, that figure is still the second-highest number of administrations since the first quarter of 2014.

"For some businesses, restructuring through an insolvency procedure is the best means of dealing with stalled growth," Swift stated.

"Although numbers of administrations - a procedure designed to support business restructure and rescue - have fallen back slightly from last quarter, they are still at their second-highest quarterly level since 2014.

"Meanwhile, the increase in CVLs suggests business rescue is more difficult to achieve in the current economic environment, perhaps reflecting greater uncertainty that purchasers can deliver sustainable business turnarounds."