Economic uncertainty driving rise in insolvencies

More companies across England and Wales are opting for voluntary rather than compulsory liquidation because of rising Government costs, an insolvency expert has said.

The Insolvency Service’s report, published by the Government, showed company insolvencies increased slightly in Q3 2019 compared with Q2 2019.

According to the report, the increase was primarily driven by a rise in administrations and creditors’ voluntary liquidations.

Ian Defty, Partner at CVR Global, said this trend can be largely attributed to the costs associated with seeking compulsory liquidation.

Defty said: “It’s definitely becoming more expensive to go down the compulsory liquidation route.

“We are seeing an increase in the number of creditor voluntary liquidations (CVL) which are relatively less expensive compared to compulsory liquidations handled by the Government.

“It may also be more beneficial for a company to seek CVL as a company will avoid being petitioned through the courts.”

Another reason for the quarterly rise in company insolvencies cited by Defty was the October 31 Brexit deadline which was agreed earlier this year.

While this deadline has since been extended to January 2020, according to Defty, insolvency practitioners will have sought to finalise these ahead of the UK’s planned departure from the European Union.

Defty added: “Brexit was certainly a contributing factor to the overall increase in company liquidations.

“Without a doubt, uncertainty over the terms of the UK’s departure from the EU will have prompted many companies to make a final and decisive decision on their futures.

“We also tend to see a rise in company insolvencies after the summer months, so all of these factors will have played a part.”

Administrations reached their highest quarterly level since Q1 2014. According to Defty, administrations can be used as a means to avoid liquidation.

Defty said: “Administrations remain a way of potentially saving a company and keeping staff in employment and insolvency professionals work hard to achieve these aims.”

CVR Global’s team of experienced insolvency practitioners can provide practical solutions and guidance for all businesses facing financial distress.