Insolvency trade body R3 has warned that UK businesses could face a tough time ahead following a rise in corporate insolvencies for first time in two-and-a-half years.

President of the association, Phillip Sykes, said that although the number of businesses in trouble is below what it was last year, it is important for companies to remain diligent.

Story continues below
Advertisement
Story continues below

“UK businesses are starting to have a tougher time than they have had over the past few years,” he said. “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.”

Data shows that 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.”

The first few months of the year typically sees a higher numbers of insolvencies. People struggling with their finances may have been trying to get through to the New Year, but have not been able to turn their situation around, suggests Sykes.

“Following rapid falls in insolvency numbers throughout 2014, insolvency numbers have been roughly level over the last year. Insolvencies in the first quarter are still lower than they were this time last year. While the return of real wage growth helped insolvencies fall in 2014-15, the gap between wages and inflation is getting smaller again, which might be putting pressure on household finances.”