2019 corporate insolvencies: the winners and the losers

According to the latest Company Insolvency statistics for the 12 months ending Q4 2019, corporate insolvencies increased to the highest annual level for six years in 2019. While this was largely driven by an increase in underlying creditors’ voluntary liquidations – which reached their highest annual level since 2009 – administration figures also rose last year. Compulsory liquidations decreased, while company voluntary arrangements were flat.

As a sector plagued by uncertainty, construction was hit the hardest, with the highest number of insolvencies for the year. Although the UK construction industry overall is reporting an increase in turnover, profit margins are diminishing, a number of the larger contractors have reported pre-tax losses and some of the leading national contractors have issued profit warnings.

With the exception of Carillion, larger contractors have survived thus far, but that is not indicative of the rest of the sector. It seems a number of the smaller players are feeling the pinch with some 3,198 building contractors entering some form of insolvency in 2019 – a rise of 2.2 per cent compared to the 12 months ending Q3 2019. Some of the high profile failures last year have included Dawnus and Shaylor, while further down the list includes R Durtnell, Britain’s oldest contractor which entered into a CVA in August 2019.

Wholesale and retail trade closely followed the construction sector with the second highest increase in company insolvencies in 2019, with 2,442 reported across the year. Increased pressure on operational costs such as wages, utilities, business rates and rent has become a common problem for the high street and lead to a number of high-profile failures. This accounts for a staggering 1,184 store closures on the high street. This shows no signs of slowing, with the future of a further 69 stores put into question in the first few weeks of 2020 alone following the failure of Hawkins Bazaar, Beales and Hearing & Mobility.

Changing customer behaviour will continue to dictate the agenda in 2020, meaning consumer-facing sectors will continue to suffer. Automotive will be one of them due to the continued slowdown in consumer demand, while the same can be said for the hospitality sector. Having seen 2,307 insolvencies in 2019 and a number of household names fail in the last 12 months as a result of the slowing economy, many are starting to look closely at their budgets and making changes.

The care home sector remains a stubborn fixture on any list of struggling markets in the UK and it shows no sign of changing in the next 2020. In fact, the situation could worsen given the continued rise in minimum wage and the impact of Brexit on the ability to recruit permanent staff.

We live in an age where legacy businesses and traditional ways of working can quickly become assailed by a variety of factors, including technological advancements, rapid change in consumer behaviour and unpredicted events such as Brexit. In view of this unpredictability, the companies that will thrive in 2020 will be those with balanced competent boards with an alert eye on their changing operating environment. Critically, an agile business model is essentially to allow businesses to react defensively and, if possible, take advantage of any opportunities that may present themselves.

In the next 12 months, we will also see a rise in debt funds – which are increasingly playing a vital role in providing liquidity to business – presented by the trend of traditional UK banks retrenches towards more conservative lending strategies in light of looming macro-economic shocks such as Brexit.

It is unlikely that we will see any significant change in these trends in Q1 alone, but it is expected that the issues surrounding sectors, namely retail and hospitality, will continue to worsen if they fail to adapt quickly to change in customer behaviours.

Louise Durkan, partner at Quantuma

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