A mid-October report by Begbies Traynor reported that the number of British businesses in significant financial distress has risen by 40% since the Brexit vote – with those in the property, construction, retail and the travel sectors the hardest hit and 489,000 companies in significant distress up by 22,000 on this time last year.
This was followed by KPMG’s recent analysis of London Gazette notices of companies entering into Administration and the picture became clearer with yesterday’s statistics from the Insolvency Service.
Administrations increased by 20% in the last quarter, compared to the previous quarter, to reach their highest level since Q1 2014. CVLs (Company Voluntary Liquidations) rose by only 2.3% compared to the previous quarter but were still at their highest quarterly level since Q1 2012.
The category with most insolvencies was Accommodation and Food Services. This would suggest that dining out seems to have fallen out of favour with consumers increasingly ordering meals to be delivered and eaten at home. This was becoming apparent based on the frequency with which I have been reporting restaurant failures over the last year but is confirmed by the stats that show Food Services have come top of the insolvency list. Meanwhile the Construction Industry continues to struggle with the highest number of insolvencies over the last 12 months to the end of Q3 2019.
Notwithstanding changes in consumer behaviour and the plight of builders, there has been a steady rise in the number of insolvencies over the last two quarters which is no surprise given the ongoing economic uncertainty due to world trade, US sanctions and the Brexit farrago. Meanwhile investors and businesses remain understandably wary about planning for growth – or even planning for future trading given the level of uncertainty and lack of prospects for many businesses. All this is against a backdrop of a weakening of the global economy.
Therefore, just hanging on is often the only option for many businesses who simply want to survive rather than plan for growth where the alternative is insolvency, often via Administration.
The Insolvency Service defines Administrations’ purpose as “the rescue of companies as a going concern, or if this is not possible, then to obtain a better result for creditors than would be likely if the company were to be wound up”. All too often Administrations end up as Liquidations following a sale of the assets with companies rarely ever surviving Administration.
K2 is in the business of helping companies to survive and restructure and has several guides to help when they are in difficulties.
If you would like to know more about your duties and responsibilities as the director of a company, with particular emphasis on knowing if your company is insolvent and what to do if it, you can download the Guide to Directors Duties here.