Increase in business liquidations caused by Brexit uncertainty

Increase in business liquidations caused by Brexit uncertainty

Moore Stephens shares their insights on the topic

Moore Stephens has revealed that there has been a 10% rise in the number of businesses liquidated in just 12 months.

From 13,010 cases in 2017, to 14,270 in 2018, there is a clear pressure being placed on businesses in the face of rising interest rates and Brexit disruption.

“Liquidations, as opposed to administrations, means that the business is being closed and would up—rather than being restructured so that it can continue operating.”

With continuing uncertainty, businesses are increasingly “stockpiling” their cash reserves—this means that there is a reduction in their spending, thus impacting their order books.

“Many small businesses are struggling to stay in operation, as they are unable to cover what might only be short-term gaps in their order books,” said Duncan Swift, partner at Moore Stephens.

The Moore Stephens report added: “Liquidations, as opposed to administrations, means that the business is being closed and would up—rather than being restructured so that it can continue operating. Typically, this leaves less of a chance of jobs being preserved.”

The difficulties faced by zombie businesses

A large percentage of these liquidated businesses are classified as ‘zombie’ businesses.

“These zombie businesses are finding it particularly hard to deal with the slowdown in orders caused by the combination of rising interest rates and Brexit uncertainty.”

The standard zombie business has a weak profitability; the lack of growth means that they are unable to reduce the original debt—even if they are able to pay off the monthly interest payments. It is unsurprising, then, that zombie businesses are struggling.

Moore Stephens stated: “These zombie businesses are finding it particularly hard to deal with the slowdown in orders caused by the combination of rising interest rates and Brexit uncertainty.”

They have no capacity to take on more debt and they are unable to borrow more money to help them survive the volatile and ever-changeable economy, as well as the order flow from their clients that is changing according to the latest news on Brexit.

“If there was some clarity on the final Brexit deal, then we could see a bounce back in order books, and an end to some of the short-term stress.”

 The total number of liquidations cited by Moore Stephens consists of the following:

  • New Creditors’ Voluntary Liquidations: this is usually initiated by the director of a company, this increased from 10,200 to 11,150.
  • Compulsory Liquidations: in 2017, these numbered at 2,810—by the end of 2018, cases had increased to 3,120.

Swift concluded: “The recent slowdown in the economy is now leading to more business closures, rather than just business restructuring.

“Unfortunately, many of those businesses are already so financially stretched that they are just the kind of businesses more lenders want to avoid.

“If there was some clarity on the final Brexit deal, then we could see a bounce back in order books, and an end to some of the short-term stress.”

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