32% of West Midlands companies impacted by insolvencies

R3, the trade body representing insolvency and restructuring practitioners has produced research that shows 32% of businesses in the West Midlands has suffered a financial hit because of the insolvency of a customer, supplier or debtor in the last six months.

Chris Radford, chair of R3 in the Midlands and a partner at Gateley plc in Birmingham said:”The figures are evidence of the so-called ‘domino effect’ , where one company’s insolvency will increase the insolvency risk for others. They follow a national 13% rise in underlying insolvencies in the first three months of this year compared to the previous quarter, and a spate of high profile insolvencies involving large companies such as Carillion and Toys-R-Us”

“No business exists in isolation, and every headline-grabbing corporate insolvency will have consequences for numerous other enterprises. After the news of the Carillion liquidation broke , for example, our local members reported an immediate upsurge in requests for advice from companies with links to Carillion. In the retail sector, we witnessed the recent string of High Street administrations causing less visible struggles at other firms, such as suppliers and service providers.”

Radford commented that the problems caused by the ‘domino-effect’ can be managed with foresight and planning by assessing the impact on one’s business and calculating the extent of potential exposure to added risk.

“Any smart business knows it needs to mitigate risks due to insolvency in its supply chain, or its customers, through active monitoring of partners’ credit profiles, diversification where possible to spread risk and through building relationships which can provide support when a major counter party hits a rough patch.”

Despite some these risks and a challenging economic outlook, R3’s research also shows that there has been a net increase of 2,000 firms operating in the region since the end of 2017, giving a total of 281,000 as of the end of July 2018.

Radford added:”It is encouraging to see such entrepreneurial drive in the region, particularly as the economic climate remains so challenging. However, with the increase of companies at greater risk of insolvency, there is stronger emphasis on owners and managers to remain aware of potential issues and act swiftly on them.”

 

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