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Corporate insolvencies fall 7.5 per cent 31 July 2015

The level of corporate insolvencies in the second quarter of 2015 has fallen 7.5 per cent year on year, as many practitioners continue to see fewer formal appointments.

The Insolvency Service’s latest statistics show that a total of 3,908 companies entered into formal insolvency between April and June 2015, which was 2.9 per cent less than the previous three months and 7.5 per cent lower than the same period in 2014.

A total of 765 companies were subject to a compulsory winding-up order in the second quarter, a 15 per cent decrease on the last quarter and 21.9 per cent lower than Q2 2014. This was the main driver of the decrease in total company insolvencies.

The statistics also show that the liquidation rate in the 12 months ending in the second quarter of 2015 was 0.48 per cent of active companies, the lowest since comparable records began in the fourth quarter of 1984.

As most of the industry will be aware, the number of company insolvencies has been on a decreasing trend since 2013.

Ian Gould, business restructuring partner at BDO, said: “There is consensus across the industry that levels of corporate insolvency have never been lower, so a fall of 7.5 per cent, year on year, comes as no surprise.

“These low levels are likely to continue in the short term. Many companies that sustained themselves through the financial crisis by utilising new and innovative funding methods, such as private equity or crowdfunding, proved successful.

“For some, alternative funding efforts have been the shot in the arm they needed, but other companies with weak fundamentals are only delaying the inevitable.”

A full picture of how many distressed businesses are delaying the inevitable is unclear.

The official figures show that receivership appointments increased, but company voluntary arrangements and administrations decreased. Administrations dropped a tiny percentage from 428 to 423.

The level of creditors’ voluntary liquidations was fairly stable. There were 2,470 companies entering into creditor’s voluntary liquidation in the second quarter of 2015, a 0.5 per cent increase on the previous quarter, but 2.3 per cent lower than the same period in 2014.

There were 159 receivership appointments in the second quarter of 2015, 12 per cent higher than the first quarter of 2015, but seven per cent lower than the second quarter of 2014.

What may affect these trends later this year will be the expected marginal rise in interest rates.

Gould added: “Interest rate rises will be slow and incremental. However, even a relatively modest rise will hit many companies with fragile finances. Alongside this, rising costs of raw materials, the introduction of in the living wage announced in the Budget, and the strength of the pound may hamper business cash-flow.

“While corporate insolvencies will remain low in the short term, paradoxically we may see an increase in business failures as the economy returns to strength.”

By Marcel LeGouais

 

 

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