This suggests that the financial ramifications of the Brexit vote are already beginning to hit home and businesses should prepare for the fact that there could be worse to come, according to Simon Underwood, partner and business recovery specialist at Menzies.
‘Crucially, the 5.5 per cent rise in creditors’ voluntary liquidations is a sign that more business owners are making the decision themselves that their company is no longer financially viable,’ Underwood says.
‘This is a worrying trend and highlights the need for businesses to access advice and support at an early stage to ensure they are aware of business risks and are able to adapt their strategy before they get into financial difficulty.’
Rising costs and business insolvencies
Currency fluctuations and the challenging UK financial market created by the weak pound have left many businesses, particular those importing raw materials or other goods, stuck between a rock and a hard place; facing rising costs while still needing to stay competitive, he adds.
‘Policy makers and legislators should see these statistics as a call-to-action; underlining the need to act now to improve conditions for smaller businesses and support them through the coming Brexit uncertainty.’
Brian Johnson, insolvency partner at HW Fisher & Co chartered accountants says that a lot of companies that should otherwise have gone through a formal insolvency procedure are managing to be struck off the register, thereby avoiding the scrutiny that the conduct of the directors would be subject to if a liquidator were in office.
‘In years gone by, HMRC policed this area rigorously and was far more likely to object to companies being struck off, but a lack of resources has opened this route up to opportunistic company directors,’ he adds.
Johnson says that within the industry, the ‘black insolvency economy’ is a controversial issue as many company directors are managing to effectively shirk their responsibilities and shut up shop without an investigation and any of the usual consequences.
‘What most insolvency practitioners agree on is that Brexit has currently had no impact at all on insolvency levels. The markets may have gone a little crazy in the wake of the vote but the economy, in the words of the Chancellor, has remained resilient.
‘However, there is some concern amongst insolvency practitioners that ultimately the uncertainty surrounding Brexit will begin to impact on business insolvencies over the next 18 months to two years.’
Combat cash flow problems early
If businesses start to experience cash flow difficulties they must act early, says Underwood.
‘Working with suppliers to alleviate pressure across their supply chains and talking to customers to identify where the burden of any additional cost could rest, will help them to manage current price pressures.
‘Businesses should be aware that bank lending criteria have tightened and accessing necessary turnaround finance may not be as straightforward as it was previously.’
Further reading on business insolvencies
