The 5.4% rise is the first uptick since Q1 2014, primarily caused by a big surge in compulsory winding-up orders in Q1 2016
MORE companies went into insolvency in the first three months of 2016 at 3,694 than they did in the final quarter of 2015 but still some 3.6% below the same period in 2015, the latest figures from the Insolvency Service reveal.
The 5.4% rise marked the first uptick since Q1 2014, primarily caused by a big surge in compulsory winding-up orders in Q1 2016, at 804 companies, a dramatic 36% increase on the last quarter but still 11.5% lower than Q1 2015.
Glyn Mummery, partner at FRP Advisory, the business advisory firm, said: “The first quarter of 2016 has seen a 36% surge quarter-on-quarter in numbers of compulsory liquidations to 804 but this is more an indication of another mini cull of so-called zombie businesses, many in construction, which have survived more thanks to a low interest rate environment than any fundamental growth amid a wider economic recovery. In 2015 as a whole there were 601 compulsory liquidations in construction against 394 compulsory liquidations in wholesale and retail.”
“Overall we anticipate 2016 to at least equal last year’s record low for company administrations due to continued benign economic conditions and on current trends numbers could fall to below 1300, representing barely a third of the numbers each year in 2008 and 2009 during the recession that had to seek this form of insolvency protection while they restructured in the hope of a turnaround.”
An estimated 2,515 companies entered creditors’ voluntary liquidation in
Q1 2016, a 0.8% increase on the previous quarter and 0.6% higher compared to the same period in 2015.
There were an estimated 301 administrations in Q1 2016, a decrease of 11.1% compared to the previous quarter and 10.9% lower than the same quarter in 2015.
It also found there were an estimated 75 CVAs in Q1 2016, a decrease of 7.4% on the previous quarter and 12.8% lower than Q1 2015. There were no administrative receiverships.
The estimated liquidation rate in the 12 months ending Q1 2016 was 0.42% of active companies, the lowest level since comparable records began in Q4 1984.
The Insolvency Service says CVAs at their lowest level since Q1 1998 and administrations lowest level since Q4 2003.
Phillip Sykes, the retiring president of R3, said: “Corporate insolvency numbers last rose at the start of 2014, and despite the rise this quarter, numbers are still well below where they were this time last year. However, UK businesses are starting to have a tougher time than they have had over the past few years.
“It should be noted, though, that the rise is driven by compulsory liquidations which indicates that creditors, probably including HMRC are beginning to lose patience with customers who are not paying their debts
“At the same time it is interesting to see that the estimated liquidation rate is at its lowest level since comparable records began in 1984, this is a sign of the continuing strength of the economy.
“There has been a drop in the number of administrations which may be down to the increasing move by the insolvency profession and lenders to embrace restructuring outside of formal insolvency processes
“Creditor voluntary arrangements are their lowest since 1998. These are primarily used by the retail sector, and until headlines this week, there hadn’t been a large number of retail failures at the very start of the year.
“Following the recent administrations of BHS and Austin Reed, it will be interesting to see if the next quarter’s insolvency figures show if these are just the tip of the iceberg of a wider problem on the High Street, and if any job losses have an impact on the personal insolvency statistics.”
Meanwhile, personal insolvencies in England and Wales were 20,383 in Q1 2016, a 0.3% rise on the previous quarter, still some 2.2% lower than the same quartile in 2015.
A 3.4% rise in debt relief orders (DROs) on the previous quarter, at 6,722, was 8.2% higher than Q1 2015. This was primarily down to a change to eligibility criteria which kicked in in October 2015, the IS said.
Bankruptcy orders and IVAs both declined marginally.