Warning of the “perfect storm” as researchers reveal insolvency growth is wedded to Brexit

NEW research has confirmed a link between the Brexit process and a rise in the number of insolvencies across Yorkshire and the North East, as well as the wider UK.

After reaching a decade low in 2015, insolvencies have risen by a fifth over the last three years.

According to insolvency analysts from the respected consultancy.uk website, this upward trend is likely to accelerate as Yorkshire and North East businesses prepare themselves for Brexit.

“The UK economy is on the brink of a perfect storm,” warned their insolvency researchers this week.

“Hiring intentions have cooled in 2019 as the country braces for the impact of Brexit – suggesting that the number of insolvencies may well spiral further upward over the coming 12 months.”

They go on to say: “The correlation between the number of insolvencies in the UK and the Brexit process have become impossible to ignore.”

Latest figures from the Insolvency Service revealed there were no fewer than 17,439 insolvency procedures in 2018.

Those sectors hardest hit by insolvency included  construction, admin, retail and manufacturing – which mirrors our own research from our insolvency teams working in Leeds, Bradford, Harrogate and Darlington.

While the number of company receiverships fell, other strands of insolvency saw heavy spikes, with companies leaving it too late to take business recovery action to stave off financial collapse.

The analysis highlighted that Company Voluntary Arrangements (CVAs) has plateaued to an extent.

Here in Yorkshire and the North East, as well as the rest of the UK, they have become a popular method of staving off administration in recent times.

This is because they allow embattled companies to avoid administration while offloading underperforming stores and reducing rent costs.

But consultancy.uk argued that this latter point seems to have become a sticking point for their use – as witnessed by House of Fraser in June 2018 – meaning their use only grew marginally in the year.

With up to 500,000 UK businesses in significant financial distress and facing insolvency,  it concluded that unless the situation improved drastically, the figures were likely lead to a boom in bankruptcy and restructuring service demand – even if only half of those firms are forced into insolvency proceedings.

And the continuing spectre of a muddled and extended Brexit only served to ramp up this growing insolvency threat to business.

“The sustained period of uncertainty that has impeded the performance of many UK businesses is all but guaranteed to persist,” it declared.

“While afterwards, highly challenging economic times seem to be on the horizon. At the same time, a hike in business rates, pension enrolment, and unsecured debt will all play a role in placing businesses under financial strain.”

It’s a scenario which will resonate with many businesses struggling with financial difficulties here in Yorkshire and the North East – underlining the importance of taking prompt action before the threat of insolvency looms large.

For more information about the work of our licensed insolvency practitioners and businesses recovery teams in Leeds, Bradford, Harrogate and Darlington, please call us on 03300  244 660 or email confidential@walshtaylor.co.uk