Corporate insolvencies fall but firms must be watchful
Company insolvencies fell to their lowest level since 1989 last year, according to the latest figures released by the Insolvency Service. However, firms should remain watchful should the situation change.
An estimated total of 14,629 companies became insolvent in 2015. This was a 10% decrease compared to 2014 and the lowest annual total since 1989, when 10,456 companies entered into insolvency. The number of insolvency cases peaked in 2010, in the wake of the financial crash, and has been steadily decreasing annually in the years since.
According to the business recovery professionals’ association R3, the fall in corporate insolvencies has been affected by a number of factors, including falling oil prices, low interest rates and low inflation, which have all helped businesses to cut their own costs. Economic growth and high levels of liquidity in the markets have also helped keep businesses buoyant.
Circumstances could change quickly however, potentially leading to higher levels of corporate insolvency in the near future. Increasing volatility in the stock markets, driven by factors such as concern over China, lower growth in the developing world and geopolitical risk in the Middle East could all help lower confidence among businesses, which could hamper future growth.
Additionally, while the fall in oil and gas prices may have helped businesses in general, those operating within the energy sector, particularly smaller businesses, may be at risk of insolvency themselves. Any business facing serious financial or structural difficulties, whatever sector it is in, should seek appropriate business rescue advice or it may be in danger of becoming an insolvency statistic itself.
The 2015 fall in insolvencies was largely driven by a drop in the number of compulsory liquidations. Some 2,874 companies were subject to compulsory winding-up orders, a 23% decrease from 2014 and the lowest annual total since 1981.
Other types of company insolvency also fell. There were 357 companies that underwent a company voluntary arrangement in 2015, a decrease of 35% from the previous year. Administrations fell by 11% and an estimated 9,981 companies entered into creditors’ voluntary liquidation in 2015, representing a 4% decrease compared to 2014.
By Phil Smith