Q4 2019/Annual insolvency statistics – R3 response

Eleanor Temple, chair of R3 in Yorkshire

Commenting on the Q4 2019 (October-December) England & Wales insolvency statistics (published this morning by the Insolvency Service), Eleanor Temple, chair of R3 in Yorkshire and a barrister at Kings Chambers in Leeds, says:

Corporate insolvencies

  • Excluding one-off ‘bulk insolvency events’, seasonally adjusted corporate insolvencies in 2019 rose 6.8% from 2018. Excluding these one-off events, there were 17,196 corporate insolvencies in 2019 – the highest since 2013
  • Seasonally adjusted corporate insolvencies fell by 1.8% in Q4 2019 compared to Q3 2019, but rose by 8.1% compared to Q4 2018.

“Today’s figures are a reflection of anaemic economic growth throughout 2019. A number of factors have fed into this: political uncertainty, particularly around Brexit, has held back business decisions and investment, but weaker consumer confidence and sector-specific issues can’t be discounted either.

“Business confidence fell last year compared to the previous 12 months and hiring confidence hit a seven-year low at the end of December. Alongside this, economic growth stalled, consumer debt increased, and consumer confidence remained low throughout 2019. Many companies also had higher wage bills to contend with, due to rises in 2019 in minimum and living wage levels, and increased employer contributions to auto-enrolment pensions.

“Some sectors have been hit harder than others, although difficulties are increasing across the board. The construction sector struggled, traditional retailers were hit by declining footfall and the continued growth of online shopping, and the manufacturing sector had a worse year than 2018. Brexit-inspired stockpiling in 2019 may have added to disruption.

“Every quarter in 2019 saw more corporate insolvencies than the corresponding quarter in the previous four years.

“In terms of today’s figures, numbers of administrations, a procedure designed to support business restructure and rescue, have increased by 24% compared to 2018, and are at their highest since 2013.

“However, liquidations have been rising, too. For some businesses at the moment, rescue isn’t possible, although insolvency practitioners will be doing their best. It’s not an easy climate for doing business out there.

“2020 will be a key year for UK businesses. A Government with a decisive majority ends some domestic uncertainty, although there are still big question marks around what Brexit will actually look like – and exactly when new rules will kick in. Wider economic performance will partly determine whether the recent trend of rising corporate insolvencies continues or not. On the plus side, signs are that businesses are looking to increase investment and recruitment this year, so there is cause for optimism.

“Looking ahead, one additional factor which may affect insolvency numbers in Q1 and Q2 2020 is the Government’s plan to make HMRC a ‘preferential creditor’ in insolvencies from April. This will benefit HMRC at the expense of lenders, customers, and suppliers, and will hurt business lending. Some businesses could be pushed into insolvency due to a reduction in their lending facilities.

“These insolvency figures should be a wake-up call to any director of a company which is finding it hard going at the moment. Anyone in this position should look to take objective advice from a qualified, professional source, to decide the best path forward – and the earlier this is done, the better.”

Personal insolvencies

  • In 2019, there were 122,181 personal insolvencies, an increase of 6% on 2018, and the highest annual total since 2010.
  • Personal insolvencies fell 4.3% from Q3 to Q4 2019, and are 15.6% lower than in the same quarter in 2018.

“Personal insolvency numbers in 2019 were the highest they have been since 2010. This reflects a tough year for personal finances.

“Individuals have benefited from low inflation, real wage increases, and record employment levels, but this has been counter-balanced by rising consumer debt and the fact that not all employment is secure. For the most financially vulnerable, the problems with the benefits system have been well-publicised.

“Finances are stretched for many, and financial resilience is low. It doesn’t take much of a shock – a missed benefit payment, an unexpected bill, or a reduction in hours – to cause financial problems. Real wages are rising, but having fallen for so long before that it’s a bit too late for some, while wage increases will not be evenly distributed.

“Banks and other lenders have continued to tighten their credit standards in response to the Bank of England’s concerns around consumer over-indebtedness, which means many people have lost a fall-back option they may have used in the past.

“The length of time consumers have to repay zero interest credit cards has shortened, which may partially explain why consumer credit card repayments overtook new borrowing at the end of last year, for the first time since 2013.
“It is worth remembering that insolvency procedures are only a rough guide to the true scale of individual indebtedness in the UK. Often, the question is about access and whether someone who is unable to maintain their level of debt can meet the criteria to enter an insolvency procedure. The personal insolvency figures are only part of the picture showing the true level of serious financial trouble for individuals.

“Although increasing indebtedness is a factor in rising Individual Voluntary Arrangement numbers, market factors, such as the ability of practices to handle large numbers of cases, also play a role. Bankruptcy and Debt Relief Order numbers don’t really have the same issue and it is therefore notable that both bankruptcy and Debt Relief Order numbers have been moving up – albeit slowly and inconsistently – over the last few years. Bankruptcy numbers are now the highest they’ve been since 2014.

“There are measures being taken by the Government to help people in financial distress. The ‘breathing space’ for people in debt is due to be introduced next year, and will give indebted people a 60-day period free from creditor action to seek qualified advice as to the best way for them to resolve their situation. R3 has campaigned for the breathing space for many years and we are very pleased to see that it is nearing its launch.

“Anyone with debt worries – especially if they have recently become more intense – should speak to a regulated and reputable debt advisor as soon as possible, for help and support as they decide on their next steps.”