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CVAs soar and IVAs rise with increase in insolvencies

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The UK Government published the official insolvency figures at the end of last month and revealed that the number of corporate insolvencies has increased to the highest level since 2014. A total of 16,090 companies entered insolvency during 2018, an increase of 10% on the previous year.

The figures can be largely attributed to the collapse of hundreds of construction and retail businesses. Whilst financial and insurance sectors had less than 500 insolvencies during the year, the construction industry was the worst affected, with 2,954 company insolvencies. This is unsurprising, given the construction industry is still being impacted by Carillion’s January 2017 collapse. The retail crisis causing companies such as Toys R Us, House of Fraser and HMV to be affected has also had a big part to play.

Rise of retail issues

We have seen the use of Company Voluntary Agreements soar in 2018, up by 16% when compared to the 2017 data. This is likely to be due to reduced consumer spending and internet shopping, together with a rise in business rates and employment costs.

Uncertainties surrounding Brexit are also putting companies under pressure. Retailers and consumer goods suppliers were impacted in the run-up to Christmas, when consumers were reluctant to spend. The trend is that larger companies are increasingly reluctant to invest given the economic climate and are stretching payment terms to the limit, which can then have a significant detrimental impact on smaller companies and suppliers further down the supply chain.

Individual insolvencies

Individuals are also being affected, with the number of personal insolvencies in 2018 reaching its highest level since 2011. This was up by 16.2% when compared with 2017. According to official data, there were 115,299 recorded individual insolvencies last year. Much of this increase was driven by the dramatic rise in the number of Individual Voluntary Arrangements (“IVAs”). IVAs were recorded at their highest ever level - rising 19.9% from 2017. 

The above has already had a significant impact on consumer spending habits which could be why retailers have suffered so much in the past year. Given the level of household indebtedness, any increase in interest rates in the near term is likely to push these insolvency figures even higher.

The figures are concerning, and it is a reminder to all to be aware of early warning signs and take immediate measures if you or your business starts to struggle financially. Clarion has a dedicated Corporate Recovery and Insolvency Team and if any of the matters mentioned above impact you and you require advice, please do not hesitate to contact us.

Disclaimer: Anything posted on this blog is for general information only and is not intended to provide legal advice on any general or specific matter. Please refer to our terms and conditions for further information. Please contact the author of the blog if you would like to discuss the issues raised.