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26/01/2018

Q4 2017 insolvency statistics – R3 comments

Commenting on the Q4 2017 (October-December) England & Wales insolvency statistics (published this morning by the Insolvency Service), Duncan Swift, deputy vice-president of insolvency and restructuring trade body R3, says:

Corporate insolvencies

  • Excluding one-off ‘bulk insolvency events’, corporate insolvencies in 2017 rose 2.5% from 2016. Excluding these one-off events, there were 15,112 insolvencies in 2017.
  • Excluding a one-off ‘bulk insolvency event’, corporate insolvencies fell by 17.2% in Q4 compared to Q3 2017 and by 10.9% compared to Q4 2016.

“The slight rise in corporate insolvencies across 2017 as a whole is a reflection of the difficult year that firms in England and Wales have been through. Once exceptional events have been stripped out, there has been a small upwards trend in insolvencies since 2016, reversing several years of falling insolvency numbers.

“Inflation has eaten into many firms’ margins thanks to rising input costs on the one hand, and with customers proving somewhat reluctant to stomach higher prices on the other. Businesses have faced additional headwinds in 2017 with business rates changes, an increase in the National Living Wage, and the final stages of the pensions auto-enrolment roll-out. Slower GDP growth has hindered firms’ momentum, too.

“Our members have reported the construction and retail sectors as being under the most strain. The construction stresses most obviously demonstrated by Carillion in the early part of 2018.

“Intense competition and discounting in the run-up to Christmas has been another factor to add in to the mix in the last three months, although if there is an insolvency impact of poor pre-Christmas trading for retailers, it will be seen in the next quarter’s figures – as will any knock-on effect of Carillion’s liquidation on its suppliers and sub-contractors.

“On the plus side, manufacturers have started to benefit from a weaker pound, which has balanced out some of the serious problems this caused for businesses earlier in the year. The fall in insolvencies from Q3 to Q4 could hint at improving business conditions overall, although the acid test for this will be next quarter’s figures.

“Although increasing year-on-year, insolvency numbers are still historically low. Low interest rates and easy access to alternative forms of finance have allowed many companies to keep going when previously they would have had to enter an insolvency procedure. R3’s members report that distressed companies are still, in many cases, able to refinance themselves, while struggling businesses are increasingly seeking advice early enough to restructure and turn themselves around outside of a statutory insolvency procedure.

“Investment in new processes, especially technological advances to streamline processes and to ensure a comprehensive and customer-friendly online offering, ought to be on directors’ minds. Standing still while others leap ahead is not an option, and with concepts which would once have been classed as sci-fi – AI, robotics, self-driving vehicles – on the brink of huge breakthroughs, there are enormous opportunities out there for UK businesses. With footfall levels on high streets diminishing, and with both business clients and consumers expecting seamless logistics and fulfilment, keeping pace with technological change is crucial.

“It’s a lot to contend with, but companies feeling overwhelmed by fast-moving trends, or whose cashflow isn’t as steady as it could be, should seek independent and trustworthy advice from a properly qualified advisor. The sooner a business seeks advice, the more options it has to survive and thrive in the future.”

Personal insolvencies

  • Personal insolvencies fell 11% from Q3 to Q4 2017, but are 10% higher than in the same quarter in 2016.
  • In 2017, there were 99,196 personal insolvencies, an increase of 9% on 2016, when there were 90,657.

“Personal insolvency numbers have been rising since mid-2015, returning insolvencies to a level last seen in 2013 and 2014. The dip in numbers from the last quarter shouldn’t be read into too much just yet, given Q3 was itself a record-breaking three months and the three highest quarterly level of IVAs were all recorded in 2017.

“There are pressures pulling indebted individuals in different directions across the previous twelve months. On the one hand, unemployment was at or near record lows, which helped many stay afloat; on the other, wage growth has been poor, inflation has taken a bite out of disposable incomes, and much of the employment available can be insecure, making it much harder for people to budget.

“Consumer debt levels have continued to rise, although recent research by the FCA and the Bank of England found that much of the increase in personal debt has been taken on by those who are more able to shoulder it – that is, it has been concentrated among borrowers classed as ‘prime’ rather than ‘sub-prime’. But, while we’re nowhere near close to the insolvency levels seen before the financial crisis, people are still increasingly struggling to keep up with their bills.

“There is some evidence that lenders are tightening their credit conditions, making consumer finance more expensive and less easily available, but there is still enough slack in the market that many borrowers are able to roll their debts over, keeping their costs down. If this situation were to change, it would be easy for more people to be caught out.

“Noticeably, Debt Relief Orders and bankruptcy numbers held relatively steady over 2017. IVAs have been responsible for much of the growth in insolvency numbers in recent years, while bankruptcies, which are reserved for the most serious cases of indebtedness, had been consistently falling since the financial crisis. Bankruptcies triggered by the person in debt have increased slightly on the previous year.

“With so much uncertainty in the air, it’s really important that anyone who is struggling with their debts, or who feels their financial situation is precarious, should seek help and advice from a qualified and regulated source. Government plans to introduce a short ‘breathing space for seriously indebted individuals are welcome, but it will take several years to actually implement. That will be too late for many.

“With personal insolvencies it’s always worth noting that the official statistics don’t tell the full story: there is a lot of ‘hidden’ insolvency out there. There are potentially tens of thousands of people in non-statutory debt management plans. Although these plans are regulated by the FCA, there is no record of exactly how many there are. This makes it impossible to grasp the full scale of serious indebtedness.”

Notes to editors:

  • R3 is the trade body for Insolvency Professionals and represents the UK’s Insolvency Practitioners.

  • R3 comments on a wide variety of personal and corporate insolvency issues. Contact the press office, or see www.r3.org.uk for further information.

  • R3 promotes best practice for professionals working with financially troubled individuals and businesses; all R3 members are regulated by recognised professional bodies
     
  • R3 stands for 'Rescue, Recovery, and Renewal' and is also known as the Association of Business Recovery Professionals.