A survey carried out by the Institute of Chartered Accountants in England and Wales (ICAEW) has suggested that the number of businesses declaring insolvency could potentially rise as a result of the impact of Brexit on the UK economy.
The survey revealed that 73% of individuals working in the insolvency and business restructuring industry believe that Brexit poses the ‘biggest threat’ to businesses over the coming years. Meanwhile, 56% of those surveyed also believe that a rise in interest rates presents a risk to UK businesses.
The survey suggested that the retail sector could be the worst affected by insolvency, with 77% of respondents believing that it would be the sector most likely to experience ‘increased financial difficulty’.
Affected firms should seek early help in a bid to restructure their finances, business processes or management, the ICAEW stated.
Reflecting on the issue, Bob Pinder, Regional Director at the ICAEW, said: ‘We are in no doubt that businesses in the UK face difficult times ahead. A sharp and unexpected rise in the cost of doing business can make managing liquidity tough.
‘We believe that a change in attitudes is critical in order to successfully avoid substantially increased corporate insolvencies – confronting business issues, rather than being ashamed of them.’
Data published by the Insolvency Service has revealed that the number of people applying for insolvency has risen to its highest level in nearly three years.
During the first three months of 2017, personal insolvencies in England and Wales totalled 24,531 – a rise of 6.7% when compared to the previous quarter. This also represents the highest number of personal insolvencies since 2014.
Meanwhile, there were 2,513 personal insolvencies in Scotland during the first quarter of this year. This was 11.0% higher when compared to the same quarter in 2016.
Adrian Hyde, President of insolvency and restructuring trade body R3, commented: ‘Although borrowing rates remain at record lows, rising inflation and slowing real wage growth will be limiting people’s financial room for manoeuvre.
‘Compared with where insolvency numbers were a few years ago, personal insolvency rates are still low and the recent bankruptcy rises have been very small. However, a continued gradual upwards shift may be a sign that the post-recession return of high levels of consumer borrowing and spending is starting to reach its limits.’
New figures from the Insolvency Service show that some 3,539 companies in England and Wales entered insolvency in the third quarter of 2015 – a 4.4% drop on the previous quarter and 10.2% lower than the same period in 2014.
However, the number of individuals being declared insolvent rose for the first time in a year, up 2.8% on the previous quarter to 19,683.
This was almost entirely due to the increasingly common use of Individual Voluntary Arrangements (IVAs), in which an insolvency practitioner helps to arrange a deal between debtors and creditors, generally reducing the chance of a debtor losing the family home and perhaps avoiding the stigma associated with bankruptcy.
The number of traditional personal bankruptcies actually fell to its lowest figure for 25 years at 3,857, and this number is likely to fall even further since new rules introduced this month mean that the minimum amount a creditor must be owed to be able to petition to make a debtor bankrupt has increased from £750 to £5,000.
Meanwhile, separate research by the Government’s Money Advice Service found that four in ten British adults had less than £500 in savings, and that more than one in five adults are unable to read a bank statement – which it described as evidence of ‘stubbornly low financial skills’ in the UK.