Bankruptcy and Insolvency in the UK Change the Business Climate

Companies that are unable to pay their debts and enter liquidation is a sad reality of the UK business environment, but also a given for companies all around the world. Some are more fortunate, and enter the administration of another company, which saves the existing enterprise. But only in the United Kingdom the statistics are still concerning regarding the future of many companies, as the number of insolvencies increased in 2017, compared to the previous year. Below are some statistics, data and facts on how these matters change and mutate the UK business environment.

Key data for insolvencies in 2017

As the business climate changes and develops, new or old companies find themselves in the incapacity of paying their debts. Of course, this happens yearly, but what are the official numbers when we discuss the year of 2017? Below are some key-numbers we should start our analysis from.

• More than 17,200 companies established on UK territory declared bankruptcy in 2017;
• Compared to the previous year, this number is 4.2% higher;
• CVLs (Creditor’s Voluntary Liquidations) increased by more than 8% in 2017, which fuelled the total number of companies that entered insolvency in 2017;
• To these numbers contributed “bulk insolvencies” – more than 2,000 of companies established in the UK that were connected to other companies declared “bulk insolvency”;
• With the exception of bulk insolvencies, the number of companies that declared bankruptcy in 2017 increased by 2.5%;
• When it comes to new companies, the numbers are similar;
• Individual insolvencies are also a rising issue on UK territory, as more than 25,000 individual insolvencies were declared in 2017;
• Out of those, more than 15,000 were individual voluntary arrangements, and more than 6,000 were debt relief orders. Also, more than 3,000 were bankruptcies.

Who deals with bankruptcy claims?

In the first stages, bankruptcy or compulsory liquidation claims are handled by official receivers. In the case of important assets, an insolvency practitioner will be the one that handles the whole process. There is a significant difference between OR and IP practitioners. ORs are civilians that work for the Insolvency Service, while IPs are licensed insolvency specialists that usually work in the private sector as accountants and solicitors. In most of the cases, experts at various outsourced credit control companies claim that debt collecting services may be a simpler solution for those that are faced with bankruptcy, as such companies have all the necessary resources and instruments to recover the money owned by various parties to the company in discussion, which has the potential to save the company from compulsory liquidation, but also bankruptcy.

How are bankruptcy and insolvency mutating the UK business sector?

At the beginning of 2018, the UK construction giant “Carillion” disturbed the economy and forced the Government to find solutions as this measure led to the loss of approximately 19,000 jobs. As the company gathered more than $1.3 billion in debt, as a series of unprofitable contracts were signed. The experts at Racing Credit Control claimed that the company’s liquidation could not be avoided, as the amount accumulated in debt was impressive. Now only the company’s employees were threatened, but also a series of subcontractors that the company was collaborating with. The public sector was also affected, and the question if outsourcing public contracts to private companies appeared, as it also did in the past. This seems to be a common issue in Britain, as the giant was not only a significant player when it comes to schools and prisons, but it also played an important role in building new hospitals and even railways. But how did Carillion manage to go bankrupt from being one of the most prolific construction companies in the UK? Well, underbidding for contracts with low profit margins seems to be the main culprit in this company’s case. The fast expansion of this company seemed to also contribute to the fast debt accumulation.

Three large contracts with the public sector seem to be those that put an end to this company’s activity and capacity of paying the existing debts. However, this is only one of the cases of this kind in Britain. More and more companies are faced with similar issues, and jobs and smaller contractors are just within months, at most, from suffering damage that may be beyond repair. While this trend is a common one in more and more European states, the UK seems to be somehow leading it.

These are some facts and data on how bankruptcy and insolvency are modifying the UK business environment. The trend seems to be an ascending one, as in the past few years the insolvency rates reached those in 2008, when the financial crisis hit the world. While theoretically the financial crisis is long gone, an increasing number of companies become unable to pay off their debts.