Is Company Rescue Going to be Needed more in 2016?

Despite an excellent finish to 2015 and a strong start to the new year, there are warnings from industry insiders that UK businesses should expect a bumpy ride in 2016. The recent company shutterstock_126022019insolvency statistics for Q4 of 2015 show that businesses requiring company rescue have fallen to their lowest level since 1989; however, there are concerns that the improvements of 2015 may not be maintained.

The warnings have come from the insolvency trade body R3, and other major insolvency specialists have undertaken research that shows the tide could be set to change. This flies in the face of the recent insolvency statistics for 2015, as well as the results of R3’s recent business distress survey. So just what should UK businesses expect in the year ahead?

Company insolvency and business distress hits record lows

Anyone who keeps a close eye on the latest corporate insolvency and finance news would be forgiven for thinking the economy looks pretty rosy for UK businesses in 2016. Company insolvencies in 2015 reached their lowest levels since 1989, with a 10 percent year-on-year drop from 2014. An estimated 14,629 companies entered liquidation, administration or some other company rescue process during the year.

According to R3, the levels of business distress in the UK also hit new lows at the end of 2015, with just 17 percent of businesses reporting a key indicator of distress. This replaces the previous record of 24 percent in April 2015, and is well below the 64 percent recorded in the first survey in March 2012. There was also an increase in the levels of business growth, with 69 percent of businesses reporting at least one key indicator of growth.

So what is causing this apparent concern for the year ahead?

The warning signs

More businesses are reporting at least one key indicator of growth, but R3’s survey of 500 UK businesses found fewer companies are reporting multiple signs of growth. This supports the view that many businesses enjoyed a period of rapid growth in recent years which is now starting to plateau.

These suspicions have been backed up by the findings of Begbies Traynor’s Red Flag Alert research for Q4 2015. The research found that 268,898 UK companies ended 2015 suffering from significant signs of financial distress. This was 17 percent higher than figures for the same period last year.

These findings were spread across a diverse mix of industry sectors, with 58,955 service companies, 12,418 manufacturers, 41,373 consumer businesses and 50,122 construction firms reporting significant financial distress. This represented a year-on-year increase of 19 percent, 18 percent, 18 percent and 17 percent respectively.

Headwinds appearing in the wider economy

There are a number of signs that the wider economy is going to mimic the UK’s weather at the moment, with stormy times ahead. Declines in construction activity, mining, manufacturing and oil and gas support services are providing plenty of cause for concern. This is the result of increasingly competitive pricing and the slowdown of the Chinese economy.

It’s also thought that uncertainty in the world economy and a falling stock market will bring about the significant slowdown and put doubts in the minds of British businesses. The introduction of the higher minimum wage in April 2016, with a rise to £7.20 for workers aged 25 and over, could also lead to difficult decisions in the next 12 months.

R3 has warned that the impact of these developments could be felt particularly strongly by smaller companies. Additional cost pressures resulting from the minimum wage hike, potential interest rises and increasing difficulties trying to raise finance could cause many to struggle in 2016.

How can we help?

If you’re struggling to source finance, maintain a healthy level of cash-flow or pay your VAT, PAYE or corporation tax bill in 2016, we can help. We offer a free director’s helpline to protect your interests and provide the experienced advice and assistance you need. Call 08000 746 757 for immediate help use the orange box in the lower right-hand corner.

 

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