According to official figures in eth United Kingdom, the rate of increase in the number of company administrations reached its highest since the last five years because of continued uncertainty over Brexit and the struggling high street retailers.
In the first three months of the year, there was a 21.8 per cent rise from the final three months of 2018 in the number of administrations which came in at 415 according to data from the UK Insolvency Service. This is also the highest number since the first quarter of 2014 as recorded by the government agency.
Companies choose to go into administration in their efforts to either restructure and re-establish themselves as a going concern or for aggregating more money for creditors in case of a wind up when companies face tough financial conditions.
There was a rise of 6.3 per cent during the first quarter of the current year in the total underlying insolvencies which hit 4,187 which is the second highest level in five years. Liquidations and creditors voluntary arrangements in addition to administrations comprise to form the figure for total Underlying insolvencies.
Companies that went into insolvency were put under severe pressure because of the uncertainty surrounding Brexit because they had stockpiled more goods before the original Brexit deadline on 29 March which was later postponed till October of this year according to insolvency experts.
Smaller firms have been severely hit by significant Brexit uncertainty in particular, and rising employment costs and business rates in general, said Mike Cherry, national chairman of the Federation of Small Businesses.
“Ongoing uncertainty is a critical issue for small firms and the self-employed, and central to this is the unknown nature of what the UK’s relationship will look like with the EU,” he said.
Typically, companies and retailers that go into administration in the first quarter usually do not do well during the very crucial Christmas shopping period. According to retailers, the last year end festive season sale was amongst the most depressing for the industry which had been witnessed by the industry primarily because of subdued levels of consumer confidence despite the recent recovery of trading on the high street.
The biggest rise in underlying insolvencies over the first quarter was seen in the wholesale and retail trade and vehicle repair industry, said the Insolvency Service.
Companies had “exhausted their standard toolkit for coping with reduced demand”, said Stuart Frith, president of insolvency and restructuring trade body R3.
“Further discounting won’t cut it, or is impossible, and a restructuring is the only option,” he added.
Amidst the containment of real wages well below the peak that was recorded in the country before the financial crisis that happened about a decade ago, high levels of personal debt on credit cards had put consumers in a tight spot, said analysts.
“That the insolvency rate today is more than double what it was in the early noughties underlines how, as a nation, we have become increasingly leveraged on debt,” said Peter Briffett, co-founder and chief executive of the pay app Wagestream.
(Adapted from TheGuardian.com)