Published on 1st February 2016
January is often a good time for reflection with the view of making positive changes for the year ahead, yet to do this successfully, you need to really critically assess the previous 12 months.
This review exercise is common practice for most commercial businesses at this time of year and those operating in the insolvency profession will certainly have read the latest report to have been published by the Insolvency Service which contains the Q4 2015 statistics along with annual figures for the whole of last year.
Perhaps the most startling message to have come from the report was that the total annual number of registered company insolvencies in England & Wales were at the lowest level since 1989 with compulsory liquidations falling to their lowest annual total since 1981 – that’s 23% down on the previous year.
Although a rather hard-hitting result that will certainly please the government, it is not one that will have surprised many working in the insolvency profession, especially when you read on in the report.
The Q4 data for company insolvencies in England & Wales is consistent with the aforementioned annual figures in that there were 10.5% lower corporate insolvencies than in Q4 2014.
A key condition behind such decline is again the levels of compulsory liquidations with a 5% drop off from Q3 2015 and a significant 30% drop off from Q4 2014.
Other key statistics show that CVLs were slightly down on the quarter before, CVAs at the lowest level since Q1 1998 and the estimated liquidation rate was at its lowest level since comparable records began.
However, a reversal in this slow and downward trend in corporate insolvencies was seen in Scotland as the country experienced a sharp increase in the number of business failures going from 180 in the previous quarter to 254 in Q4.
Global pressures to the oil and gas sector along with struggles in supply, leisure and hospitality certainly had an influence on this sudden and unexpected increase.
Looking back at the 12 months spanning Q3 2014 - 2015, here are the key five industry sectors in England & Wales that suffered the highest number of business failures:
- Wholesale, retail and motor repair
- Administrative and support services
- Accommodation and food services
This trend has remained consistent since Q1 2012 and it is unlikely that it will be changing anytime soon based on the pressures each of these industries is suffering in the current economic climate.
Predictions for 2016
The expectation for 2016 from those in the insolvency profession is that corporate and personal insolvency figures are unlikely to alter much from their continual downward trend since their peak in the recession.
Mark Carney’s statement from a couple of weeks ago that “now is not yet the time to raise interest rates” will likely safeguard the ‘zombie’ businesses on the brink of distress with predictions for the next rate review to be late 2016/early 2017 at the very earliest.
One insolvency procedure that will likely keep Insolvency Practitioners busy for the first quarter of 2016 is the Members Voluntary Liquidation for solvent businesses.
The tightening of the tax rules come April 6 will mean that distributions to members following a solvent liquidation process would be subject to paying income tax.
This change is already prompting many business owners to reach out to Insolvency Practitioners to help them make the most of the current rules which allows for a lower rate to be paid on distributions via Capital Gaines tax and Entrepreneurs’ relief.
It will be intriguing to see the Q1 statistics in April of this year as to whether the rate of decline is likely to remain at its current pace but with market conditions unlikely to change, work generation for Insolvency Practitioners is only going to become harder.