East Midlands insolvency risk deepens

Despite national government statistics showing a sharp 15.4% drop in underlying corporate insolvencies in the second quarter of 2017, more East Midlands businesses are standing at the brink of insolvency than at any other time this year.

This is according to new monthly research by the Midlands branch of restructuring and insolvency trade body R3 which shows that over one in four businesses in the region – 28 per cent – are now at higher than normal risk of becoming insolvent.

R3’s August figures, compiled using Bureau Van Dijk’s Fame database, highlight that this is equivalent to over 57,400 East Midlands companies and is in contrast to January’s figure, which was four points lower at 24 per cent or just over 47,500 local businesses.

Of the key East Midlands business sectors monitored by R3 – which include manufacturing, retail, construction, agriculture, professional services, pubs, hotels and restaurants – technology and IT was the only sector to register a decrease in insolvency risk this month.

Technology and IT, however, continues to be the highest risk sector surveyed by R3 in the East Midlands, with nearly four in ten – 38.2 per cent – of businesses at above average risk of insolvency. The East Midlands also has a higher proportion of technology and IT companies with an elevated risk of insolvency than any other region in the UK.

R3 Midlands chairman Chris Radford, a partner at Gateley in Nottingham, said: “Midlands insolvency practitioners have been reporting a tougher time for businesses throughout 2017 and our latest sector research backs this up.

“The 15.4% fall in underlying corporate insolvencies in the last quarter was somewhat surprising, but it’s important not to read too much into such a sudden change in one quarter. Prior to this, insolvencies had been rising more consistently than they had done since just after the financial crisis.

“It is therefore vitally important for companies to continue to heed the numerous economic warning signs. Higher inflation means higher input prices for businesses on the one hand and squeezed disposable income for consumers on the other. Added to this mix is wavering consumer confidence, while the election outcome and Brexit negotiations continue to cause uncertainty.

“Businesses have also had some significant increases in fixed costs over the last year. The pound’s travails have raised many import prices, while the 2016 introduction of the national living wage means the minimum wage is now £1 higher than it was in 2015.

“Many companies have seen their business rates rise, while some have also had to comply with pension auto-enrolment. Although the economy is growing, it will need to grow rapidly enough to balance these factors out.

“As always, business owners must continue to monitor their finances carefully in this testing economic climate. If cash flow becomes a major challenge, it is imperative to seek professional advice sooner rather than later.”