According to the Insolvency Service, total company insolvencies have continued to increase in the last two quarters of 2019, with an increase of 1.6% from the previous year. This has been driven by increases in both administrations and creditors’ voluntary liquidations; in fact, administrations have now reached their highest quarterly level since Q1 2014, having increased by 20%, whilst creditors’ voluntary liquidations have also reached their highest quarterly since Q1 2012, increasing by 2.3%.
On the other hand, however, compulsory liquidations have fallen for the third successive quarter to their lowest level since Q4 2017. In comparison to Q2 2019, they had decreased by 16.4%, and compared to the same quarter of 2018 they had decreased by 11.4%. There were 89 CVAs in Q3 2019 compared with 92 in Q2 2019 and 94 compared to the same quarter of the previous year.
Which sectors are affected?
Unsurprisingly, the retail industry has been one of the sectors under the most stress in recent years, followed by leisure and hospitality, building and construction, industrial manufacturing and consumer production. According to the British Retail Consortium, 2019 saw the first annual sales decline since 1995 as a result of the High Street Crisis. Deloitte analysis reveals a total of 124 UK retail administrations in 2019, 23% of which were large retailers employing over 51,000 staff.
However, according to KPMG, the number of retail and consumer firms going into administration in has decreased - so what’s going on? Well, although fewer retailers have collapsed outright, the industry is still under immense pressure with more firms utilising restructuring methods to avoid insolvency. Yes, there are a large number of store closures, but with refinancing, restructuring, CVAs, job losses and pre-packs, the number of retail businesses actually folding is declining.
Will Wright, a partner at KMPG’s restructuring team, said: “There has been a clear increase in CVAs, and by using that, companies don’t go into administration. There is still a debate to be had over their use, but it means they are not taking the retailer out of the market and we’ve therefore seen fewer retailers having to shut all stores”.
Other sectors suffering are accommodation and food service industry, who have the largest increase in underlying insolvency volumes. The administrative and support services group saw the largest decrease in volumes (50 fewer, a 1.9% decrease), whilst the highest number of new underlying company insolvencies was in the construction industry with 3,106 insolvencies; followed by administrative and support services with 2,585 insolvencies.
Is your business facing financial difficulty?
If your business is experiencing financial difficulty, the sooner you seek help, the better. Remember that insolvency doesn’t always have to mean the end of your business - and by working with a licensed insolvency practitioners, you can find the best possible outcome for your business as quickly as possible. At McAlister & Co, we are business insolvency experts, so if you are facing insolvency are are looking for advice on what to do next, contact our expert team today.