Published on 23rd August 2017
At first glance, it would appear that UK insolvency practitioners were kept very busy last quarter with many new corporate case appointments registered for Q2 - a 12.6% rise on Q1 and a significant 27.8% for the same period in 2016.
Yet when reviewing this spike closely, it is clear to see that these figures were primarily inflated following the one-off liquidation of 1,131 personal service companies after changes to the claimable expenses rules. Without these PSCs entering liquidation, the underlying number of corporate insolvencies for Q2 fell to the lowest quarterly level since comparable records began in 2000.
Although it is important not to over analyse the reasons behind an unexpected change, it does come as a surprise when you consider that businesses have had to deal with higher fixed running costs, rises to minimum wage spend, the fall in the value of the pound impacting import prices and the statutory contribution requirement for pension auto-enrolment.
There is an argument to suggest that Q3 figures should be higher with some formal procedures lengthened following the April rule changes. Although with an unanticipated 2.6% inflation drop in July, it is becoming increasingly more and more difficult to forecast economic trends and in turn the financial security of businesses, with many still trading but on the very edge.
The most recent survey that came out of R3 revealed that one in 25 businesses (estimated 80,000 UK businesses) would not be able to sustain an interest rise of only 0.25%, highlighting how financial vulnerable many companies are to even the slightest economic changes.
It is also not just corporations who are feeling the pinch, there were 22,772 individual insolvencies in Q2 with bankruptcies making up 17%, Debt Relief Orders at 27% and the rest consisting of individual voluntary arrangements.
Although these figures were down on the previous quarter and are a reversal in the upward recent trend, there are still many individuals who are struggling to get by each month with inflation outstripping wage growth and saver rates stagnating at all-time lows.