The number of companies entering insolvency to deal with debt problems has risen to a four-year high, as uncertainty around the shape of the final Brexit deal puts a freeze on cash flow.
The underlying number of company insolvencies increased to 16,090 in England and Wales last year, the highest level since 2014, UK government statistics show.
Excluding one-off ‘bulk insolvency events’, seasonally adjusted corporate insolvencies in 2018 rose 10% from 2017.
Insolvency and restructuring trade body R3 cited weak consumer demand for these figures, adding that uncertainty around the final Brexit deal and future EU-UK trading relationship is already forcing businesses to hold off on investment decisions, affecting their suppliers and customer networks.
“It has also prompted some companies to stockpile, putting a squeeze on cash flow and reserves,” said Stuart Frith, president of R3.
Frith noted that in 2019, businesses, social enterprises and charities in the health sector are being hit by a double whammy: government funding subsidies are being cut, while these sectors are also “expected to pick up the slack” for work that the public sector doesn’t have the resource to carry out any more.
“Government proposals to give itself priority status for repayments in insolvencies may well have a negative impact on the ability of small businesses to finance themselves this year,” he added.
“With uncertainty in the supply chain, many businesses will be seeking to increase their stock levels to counteract this and will require new finance to do so. But if funders are concerned that the Government will take a bigger cut if things go wrong, then lending decisions become much harder.”