Corporate insolvencies set to rise post-Brexit

INSOLVENCY and restructuring experts believe the UK’s decision to leave the EU will lead to a rise in corporate insolvencies in the next year.

Insolvency and restructuring trade body R3 said a membership survey had concluded the referendum result had already hurt many businesses’ finances.

Almost three-quarters (72%) of those surveyed believe the referendum result will cause corporate insolvency numbers to rise by the end of 2017, while over half (55%) say business finances have been hurt since June.

Insolvency and restructuring experts are most concerned about a ‘hard Brexit’: over three-quarters (76%) think it would lead to more corporate insolvencies and well over half (60%) think such a scenario would cause personal insolvencies to rise.  

A ‘soft Brexit’ option is seen as less risky for businesses and individuals.

Only 1% of R3 members said they believed ‘soft Brexit’ would lead to a ‘significant increase’ in corporate insolvencies, whereas over one-third (35%) said the same for ‘hard Brexit’.  

Four-in-ten (39%) practitioners think a ‘soft Brexit’ will have no impact on corporate insolvency numbers, but fewer than one-in-ten (8%) thought a ‘hard Brexit’ would have no impact.

R3 Midlands chairman Chris Radford, a partner at Gateley in Birmingham, said: “The uncertainty around what final form ‘Brexit’ will take makes it difficult for businesses to plan ahead and assess what risks and opportunities they have.

“A continued rise in insolvency numbers, however, is not inevitable. Recent years have seen the insolvency and restructuring profession focus increasingly on rescuing business outside of formal insolvency procedures.  This approach may help keep post-‘Brexit’ insolvency numbers down.  A lot will depend on how the economy performs after the split with Europe, too.

“It is crucial to remember that if businesses do run into trouble, they should seek advice as early as possible. Ignoring problems will not make them go away.”

Survey respondents said they expect manufacturing, financial services and retail to be the three sectors most adversely affected by ‘Brexit’; mining, defence and IT are the industries least likely to be affected.

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