Insolvency Index: real estate and construction suffer worse figures than economy overall

By Tim Wood and Henry Kirby | 30 January 2015

“We may start to see a change in the make-up of the landscape of corporate insolvencies in the next year” – Giles Frampton, president, R3

Companies in the UK have suffered a rise of a third in insolvencies as growth in the economy loses steam.

New figures show an increase of 30.4 per cent in the number of companies that filed one or more insolvency notices in December compared with the same month the previous year, rising from 2,217 to 2,891. The December figure was up 22.8 per cent on the 2,354 companies that filed for insolvency in November.

The final quarter of the year saw a sharper rise, up by 38.5 per cent from 5,300 in 2013 to 7,342 in 2014.

The data from the Exaro Insolvency Index comes as the Office for National Statistics (ONS) said that growth in the UK economy sagged to 0.7 per cent in the final quarter of last year. The figures show that the recovery is losing steam, coming at the end of a year in which the economy overall grew by 2.6 per cent, the highest level since 2007.

Giles Frampton, president of R3, also known as the Association of Business Recovery Professionals, said: “Businesses can run into trouble after recessions or economic doldrums – as we have experienced for the past five years or so – because they are simply not ready for growth.

“If a business cannot invest to support its growth, cashflow can become a big problem and the business may find itself ‘over-trading’. Fresh access to finance is crucial to avoid funding gaps.”

In December, every category of company failure rose compared with a year earlier, with a year-on-year increase of more than a third in orders or resolutions to wind up, rising from 1,688 to 2,258. Appointments of liquidators increased by just under a third, from 1,669 to 2,217, in the same time.

The final quarter of the year shows a similar trend, with the exception of a fall in the number of companies that filed for administration or receivership.

The changes are shown in the top two graphs to the right, which can be clicked to enlarge.

Real estate suffered a rise in insolvencies, reflecting the pattern in the overall economy. The number of companies in the sector that filed one or more insolvency notices rose 39 per cent from 154 in December 2013 to 214 last month.

There were year-on-year rises in all categories of insolvency in December, as well as the final quarter of 2014, as shown in the other two graphs.

Last month, liquidators were appointed to Foyleside, a property company that owns several shopping centres, including the largest one in Londonderry, Northern Ireland.

The construction sector, which was identified along with falling industrial production as a key factor that was holding back the growth rate, saw a year-on-year rise in company failures, up by 45.5 per cent from 453 in December 2013 to 659 last month.

Insolvencies among information and communication companies rose by 22 per cent to 765 in the last quarter of 2014 compared to 625 for the same period in the previous year.

Frampton pointed to signs that insolvencies may continue to rise, saying: “Recent R3 research found that 154,000 businesses, up from 103,000 in November 2013, were only able to pay the interest on their debts.”

He added: “We may start to see a change in the make-up of the landscape of corporate insolvencies in the next year as reforms, lobbied for by the insolvency profession, begin to take effect.

“The Enterprise and Regulatory Reform Act will make it easier to put companies into a business-rescue procedure by preventing key suppliers, such as IT providers, from changing their terms of supply to struggling businesses.”

“This will save more viable companies.”

Joe Grice, chief economist at the ONS, said that it was “too early to say” whether the latest growth figures showed that there was a general deceleration in the economy.

Most economists are optimistic about the economy’s prospects, especially because of the potential for the fall in oil prices to push up growth.

In one bright spot in the latest figures from the Exaro Insolvency Index, retailers enjoyed a further fall in insolvencies, with a drop in company failures by 28 per cent from 202 in December 2013 to 145 last month.

The Exaro Insolvency Index is based on insolvency notices in the London, Belfast and Edinburgh Gazettes, combined with information from Companies House. A small proportion of the insolvencies is not ascribed to a specific sector in the source data.

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