Business insolvencies rose in real terms during the first three months of the year – the third quarterly increase in a row, according to the latest Insolvency Service statistics.
They show that the underlying number of business failures rose by 4.5% compared to the previous quarter and by 5.3% compared to the same period a year ago.
The insolvency trade body R3 says that the statistics are in line with experience in the North West where insolvency and finance professionals are reporting an increase in inquiries from firms in distress.
Paul Barber (pictured), the North West chair of R3 and a partner at Begbies Traynor, says: “Insolvency professionals report they are busier than last year but there are no particular patterns emerging as yet so is difficult to tell what specific problems businesses are facing.”
Insolvency numbers in the last quarter of 2016 were distorted by the inclusion of 1,796 connected companies entering insolvency at the same time. Therefore while the latest figures appear to show that company insolvencies have fallen, the number has in fact increased in real terms. Other figures released at the same time show that the growth slowed to 0.3% during the first quarter, the lowest level for a year.
Paul Barber added: “Low-interest rates, patience on the part of creditors and a growing economy mean insolvency numbers are still close to record lows but the past year has been much more challenging for businesses.
“The pound’s fall in value since the EU referendum will have hurt importers, while many of the currency hedges that protected larger companies in the immediate aftermath of the referendum will have begun to unwind at the start of this year. Other challenges include the introduction of the National Living Wage and the rollout of pension auto-enrolment to smaller firms.
“It’s worth noting, however, that insolvencies usually rise in the first three months of the calendar year as many companies come to the end of their financial year and have to make some difficult decisions. However, we will be watching the numbers closely over the next year to see whether recent rises are just a blip or the start of a new longer-term upwards trend.”
Personal insolvencies also increased during the first quarter to reach the highest level since the second quarter of 2014. There were 24, 531 individual insolvencies, almost 7% higher than the previous quarter and almost 16% higher than the same quarter the previous year.
Paul Barber added: “Although borrowing rates remain at record lows, rising inflation and slowing real wage growth will be limiting people’s financial room for maneuver.
“Compared to where insolvency numbers were a few years ago, personal insolvency rates are still low and the recent bankruptcy rises have been very small. However, a continued gradual upwards shift may be a sign that the post-recession return of high levels of consumer borrowing and spending is starting to reach its limits.
“It should be remembered that the official insolvency numbers do not give the full picture as there are potentially hundreds of thousands of people in non-statutory debt management plans, but unfortunately, there are no official statistics on these. Better information would give us a better understanding of the personal insolvency landscape. A register of debt management plans would be a good step forward.”