Recent research carried out by the leading corporate reputation, public policy and communications research consultancy ComRes, has lifted the lid on the true value of the UK’s insolvency profession. The good news for UK firms is that insolvency does not necessarily spell the end of your business.
The research, which was commissioned by the insolvency trade body R3, canvassed 448 insolvency professionals across the UK. It found that in 2013-2014, insolvency practitioners helped to rescue two-in-five of all insolvent businesses in cases where an insolvency practitioner was appointed (approximately 85% of formal insolvencies).
In real terms, this meant that insolvency practitioners helped around 6,700 businesses to continue trading in some way after entering a company insolvency. This resulted in 230,000 jobs across the UK being saved.
Increased assistance outside of formal insolvency procedures
Commenting on the research, Phillip Sykes, President of R3, said: “Insolvency practitioners witness first-hand the human cost of business failure and will make every effort to protect jobs where possible. The sooner insolvency practitioners’ advice is sought, the more chance there is of a successful job and a company rescue. The insolvency profession is increasingly helping businesses outside of formal insolvency procedures too.”
In total, the research found that 10,400 businesses had continued to operate after working with insolvency practitioners during the course of the year. This includes those rescuing or winding-up the business through a formal insolvency procedure, such as a:
- Company Voluntary Arrangement (CVA)
- Administration Receivership
However, there were also many businesses that managed to successfully avoid the use of a formal insolvency procedure by working with turnaround practitioners before their finances reached such a critical stage. In total, the businesses that benefited from the professional assistance of insolvency practitioners and continued to trade as a result were responsible for employing approximately 540,000 people.
The importance of business recovery and renewal
The president of R3 added: “There is much more to insolvency than business finance failure. As the economy continues to recover from recession, business recovery and renewal will form an important part of the economic landscape.”
Thankfully, there are promising signs emanating from the industry for businesses of every size operating in the UK. The insolvency sector itself currently employs around 12,000 people in various roles within the insolvency profession, with 1,750 of those registered insolvency practitioners.
Given the economic turmoil of the last few years, the number of corporate and individual insolvencies was on the rise. In 2009, the number of UK insolvencies peaked, with 26,000 company and 160,000 personal insolvencies. There has been a significant drop in these numbers in 2014, with corporate and personal insolvencies falling to 18,000 and 114,000 respectively.
The research also found that, in 2013-2014 alone, insolvency practitioners were able to help creditors reclaim £5bn of the money they are owed by insolvent companies and individuals. These payments will be made over the next five years.
When is it time to seek help?
Under English law, a business is considered insolvent if it cannot pay its debts. There are two tests to determine whether your company is insolvent:
- The cash-flow test: is your business able to pay its current debts, or its future debts, as they become due?
- The balance sheet test: is the value of your company’s assets less than the value of its liabilities?
If the answer is yes to either of these two tests, you should seek immediately. The earlier you seek advice, the easier it will be to deal with a company insolvency. For more information, please get in touch with our team of company rescue experts on 08000 746 757.