Insolvencies rise in 2017 marking a difficult year for business

insolvencies rise signalling storm clouds overheadThe highest numbers of insolvencies throughout 2017 occurred in the construction and retail sectors according to the lnsolvency Service’s latest revelations on the state of business in England and Wales.

The figures published on January 26 2018 alongside the insolvency statistics for the quarter from October to December 2017 (Q4) showed that overall insolvencies have continued to rise compared with 2016, by 2.5%.

While the numbers of businesses liquidated via administration and CVAs (Company Voluntary Arrangements) both fell, there was a significant increase in those closed by Creditors’ Voluntary Liquidations (CVLs) – up by 8.2%.

A CVL is used by a company’s directors choosing to voluntarily bring the business to an end by appointing a liquidator.

The results indicate that there was a degree of uncertainty for businesses throughout 2017 in the context of the ongoing and opaque negotiations on Brexit, a point reinforced by Duncan Swift, deputy vice president of R3, the insolvency and restructuring trade body.

He said: “The slight rise in corporate insolvencies across 2017 as a whole is a reflection of the difficult year that firms throughout England and Wales have been through,” adding that since 2016 the trend of falling insolvencies had reversed.

Among the “additional headwinds” he cited for 2017 have been the business rate changes, the increase in the National Living Wage, the final stages of pensions auto-enrolment inflation eating into margins with customers reining in on spending.

Clearly it has all been too much for the 15,112 businesses that were declared insolvent in 2017.

On the plus side, manufacturing has been enjoying steady growth due to the weaker £Sterling, and lower numbers of insolvencies between Q3 and Q4, “could hint at improving business conditions overall” he said.

Nevertheless, 2018 is not looking like a time when businesses can relax their vigilance on cash management and I would advise them to be diligent in strengthening their debt collection and credit monitoring to improve cash flow and avoid being caught out by extending credit to future insolvencies like Carillion.

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