GDP growth fails to hold back rise in insolvencies – R3 Midlands

Latest figures from the government’s Insolvency Service show that underlying corporate insolvencies rose by 13% in the first quarter of this year (January-March) compared to the previous quarter (October-December) and by 0.6% in comparison with the first quarter of 2017.

Commenting on the statistics, R3 Midlands chairman Chris Radford said: “Insolvency has definitely risen up the agenda over the first quarter of this year, with a roll-call of high-profile names – Carillion, Maplin, Toys R Us – entering a statutory insolvency procedure. There have also been widely-reported restructuring efforts among a number of other chains, especially in the casual dining space.

“Crucially, any time a company encounters difficulties there is a ‘domino’ effect on its suppliers and customers, who may face their own financial problems as a result of lost income or key supplies.

“Although there was plenty of support on hand for Carillion’s sub-contractors, suppliers and customers from the financial services industry, for example, our R3 members still reported an uptick in requests for advice.”

Mr Radford, who is also a partner at the Birmingham office of law firm Gateley plc, believes there are a number of reasons for the increase in corporate insolvencies.

He explained: “A raft of profit warnings and lower than expected corporate results in the first three months of the year point to a difficult trading period over the festive season, while Black Friday at the end of November pulled consumer spending forward, eating into the success of the New Year sales.

“The ‘Beast from the East’ and repeated episodes of bad weather are also contributory factors. Indeed, government statistics indicate that there has been barely any economic growth in the first quarter of this year.

“The insolvency figures for January to March may also have been affected by the end of the financial year falling in early April. Our R3 members report that the first quarter of the year is a relatively common time for directors to take stock of their position, and decide whether or not to continue to trade.”

R3 Midlands reports, however, that there is some positive news for the region on the back of the research.

Mr Radford continued: “Consumer confidence beat market expectations in March, although it’s still firmly in negative territory. Looking forward, the rate of pay growth is now slightly higher than inflation, meaning people have a bit more in their pocket to spend, which will be a relief to businesses dependent on the consumer pound.

“There are also opportunities for businesses facing changes in their sector if they recognise these trends are systemic, not cyclical. In retail, for example, the rise of online shopping and the subsequent need for a seamless and slick e-shop is, for many firms, as inescapable as it is potentially profitable.

“Currently, however, there are few directors who won’t need to take a strategic look at future market changes. There is no doubt that things are tough out there, but planning ahead and speaking to a regulated and reputable adviser could make all the difference.”