R3 issues stark warning amid fall in corporate insolvency
Corporate insolvency rates dipped between the first and second quarters of 2018, but it goes against an underlying upward trend, R3 has warned.
The Midlands branch of the insolvency and restructuring trade body has told businesses to proceed with caution, despite corporate insolvencies declining by 12% in April to June when compared to the first three months of the year.
Figures from the Insolvency Service for England and Wales highlight the quarterly decrease, yet the figures are still 12% higher than 12 months ago.
In order to safeguard businesses, R3 Midlands has told company directors to keep a watchful eye on their operations, especially on cashflow and invoice payments.
R3 Midlands chair Chris Radford said that while corporate insolvency rates have “bounced around from quarter to quarter” in the past few years, the underlying trend is a cause for concern.
He added that corporate insolvency rates are usually higher in the first quarter as directors take stock of their operations ahead of the financial year ending.
For the Midlands especially, he also revealed that the knock‐on effect from the collapse of several high profile companies is yet to be fully noticed.
According to figures from R3, 22% of businesses in the East Midlands recorded a form of financial hit as a result of another firm’s insolvency in the first six months of 2018.
When customers, debtors or suppliers enter insolvency, avoiding a financial issue can be difficult unless mitigating action was taken in advance.
One in 20 firms in the East Midlands said insolvency elsewhere had a “very negative” impact on their operations, while a further 17% listed a “somewhat negative” outcome.
While a wide range of reasons are behind company struggles, poor economic growth, rising staffing costs and business rates, and greater auto‐enrolment expenses are often listed as predominant factors.
Any firms facing financial distress should seek appropriate insolvency and restructuring advice in order to find the best solution for the business.
Alternatively, options reviews may showcase the best strategy for a business in difficulty, but the key is to act quickly.
By Phil Smith