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PwC presents stats showing an alarming increase in business insolvency's across the UK. In advance of tomorrow’s national insolvency statistics issued by the insolvency service, PricewaterhouseCoopers LLP (PwC) conducted its own analysis into corporate insolvencies and found that the number of corporate insolvencies in quarter three of 2008 has risen by 20% from quarter two of the year, but was up by 40% on the same quarter of last year.
In total, 4,039 businesses across England and Wales entered into insolvency in July, August and September of this year.
Mike Jervis, partner in the business recovery services practice at PricewaterhouseCoopers LLP, commented:
“We predicted in the last quarter that the small decrease in figures would be the calm before the storm. A 40% increase on the same period last year shows that the lack of confidence and capital is now impacting a much broader range of the economy than we have experienced to date.
“Despite grabbing the headlines on an almost daily basis over the last quarter, insolvency is not necessarily viewed as a death sentence anymore and businesses are seeing that insolvency techniques can be used as a mechanism to salvage and revitalise ailing operations. Used in the right circumstances, insolvency procedures including pre-packaged administrations can help to rescue a company, saving jobs, and preserving value for the company and continuity for suppliers.
“Where rescue capital is a scarce commodity, it is obvious that the sooner problems are recognised, a solution, inside or outside an insolvency process, is more likely to be achievable. In this environment, downside scenario planning should always be on the boardroom agenda.”
Which sectors are struggling the most?
In a break from the trend of the previous quarters, the sectors suffering the highest percentage rises in numbers of insolvencies were Real Estate and Hospitality & Leisure, whose numbers increased by 287% and 55% respectively from the same quarter last year to 263 and 234 insolvencies.
Commenting on the real estate figures, Barry Gilbertson, partner in the property team at PricewaterhouseCoopers LLP, said:
"The huge year-on-year increase in real estate insolvencies may be due to the large numbers of companies with a small turnover becoming insolvent – likely to be single asset Special Purpose Vehicles which are easier to put into insolvency if there is no direct financial or reputational linkage to the larger parent companies or joint venture partners.
“There is also a spike in the number of insolvencies in July, which is immediately post the June quarter day rents falling due from tenants who may be failing (delaying payment) or failed altogether meaning further vacant commercial space with no replacement tenants on the horizon. Therefore, perhaps, the landlord company did not have sufficient cash flow to pay, for example, its quarterly interest payment to the bank, and so ‘hands the keys back’.”
Numbers of construction and manufacturing insolvencies also remain high with 537 construction and 502 manufacturing insolvencies this month. However, the manufacturing numbers are still at a five year low on a 12 month rolling basis, demonstrating that the strength of the euro against the pound may be helping the attractiveness of the UK market.
The quarter also saw a number of high profile high street retail administrations including Stead and Simpson and Dolcis, however the number of retail insolvencies remained static on Q2 2008 with 437 companies going insolvent – exactly the same as last quarter. Now is not the time for retailers to relax though with the expected squeeze on consumer spend likely to make 2008 one of the toughest Christmases ever. Retail insolvencies are still at a five year high and this quarters’ numbers were a 30% increase on the same quarter last year.
Barry Gilbertson, partner, PricewaterhouseCoopers LLP added:
“We expect that retail company failures will increase immediately after Christmas, potentially causing the landlord companies to suffer from a further deficiency in cash flow which, in turn, may cause those landlords to struggle financially, or even add to the tally of real estate insolvencies in that quarter. These failures will make many high streets look even bleaker with more shop closures.”
North versus South
Our analysis shows that London has the highest number of insolvencies with 1,073 a significant 54% increase on the same period last year and driven by the high number of retail and real estate insolvencies in the region. However, the West Midlands and Yorkshire and North Lincolnshire saw the highest percentage increases with 29% and 35% increases on the last quarter to totals of 463 and 479 insolvencies respectively. The North and South generally seem to be weathering the storm in a similar way, with overall figures for the two sides of the UK being generally the same. Wales and the North East and Cumbria were the only two regions to show a slight decrease in numbers, but both regions are still up 24% and 41% in the same quarter last year.
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