A North East insolvency expert believes the region’s business community is facing a ‘critical year’ after new official figures revealed the largest annual rise in the number of corporate insolvencies since 2013.
Alexandra Withers, incoming chair of R3 in the North East, was speaking after the Insolvency Service’s latest statistics showed a 6.8% year-on-year rise in the number of corporate insolvencies across the UK, with 17,196 cases being registered in 2019.
And she is also highlighting the government’s move towards, essentially, making HMRC a preferential creditor in business insolvency cases as a possible factor in a further rise this year.
The IS report shows that there was an 8.1% year-on-year rise in number of corporate insolvencies between the fourth quarters of 2018 and 2019, although the 2019 Q4 figure was actually 1.8% lower than the preceding three months.
Alexandra Withers, who is also an Associate Solicitor in the Insolvency Department of Short Richardson & Forth Solicitors in Newcastle, says: “These figures are a reflection of anaemic economic growth throughout 2019, with factors including political uncertainty, Brexit, weaker consumer confidence and sector-specific issues all combining to hold back business decisions and investment.
“Business confidence fell last year compared to the previous 12 months and hiring confidence hit a seven-year low at the end of December, while economic growth stalled, consumer debt increased, and consumer confidence remained low throughout 2019.
“Some sectors have been hit harder than others, although difficulties are increasing across the board. The construction sector struggled, traditional retailers were hit by declining footfall and the continued growth of online shopping, and the manufacturing sector had a worse year than 2018.”
The Insolvency Service’s latest statistics also showed that the number of cases of administration, a procedure designed to support business restructure and rescue, increased by 24% compared to 2018, while every quarter in 2019 saw more corporate insolvencies than the corresponding quarter in the previous four years.
Alexandra Withers continues: “2020 will be a critical year for business at both a regional and national level. A Government with a decisive majority ends some domestic uncertainty, but there are still big question marks around what Brexit will actually look like and exactly when new rules will kick in.
“Wider economic performance will partly determine whether the recent trend of rising corporate insolvencies continues or not, although on the plus side, signs that businesses are looking to increase investment and recruitment this year provides some cause for optimism.
“Looking ahead, one additional factor which may affect insolvency numbers in the future is the Government’s plan to make HMRC a ‘preferential creditor’ in insolvencies from April, which we firmly believe needs to be urgently reconsidered.
“It will benefit HMRC at the expense of lenders, customers, and suppliers, will hurt business lending and could see businesses being unnecessarily pushed into insolvency due to a reduction in their lending facilities.
“These insolvency figures should be a wake-up call to any director of a company which is finding it hard going at the moment. Anyone in this position should look to take independent advice from a qualified, professional source, to decide the best path forward – and the earlier this is done, the better.”