Corporate and personal insolvencies declined in the third quarter of this year, with company liquidations and administrations down sharply, although there are warnings that some businesses could be forced into administration because of unexpected tax bills from HMRC following the increasing use of accelerated payment notices (APNs)
The latest Insolvency Service figures shows there has been an 11.7% fall in company liquidations over the last three months compared with July to September 2013, bringing the number to the lowest level since the beginning of 2008. Administrations decreased by 18.8%, and company voluntary arrangements and receiverships also fell.
The risks of unexpected tax bills tipping companies into administration is a growing concern.
‘Some businesses are also facing a hefty bill from HMRC who are sending out Accelerated Payment Notices to those who have invested in schemes which fall under the Disclosure of Tax Avoidance Schemes (DOTAS) regime,' said Graham Bushby, Baker Tilly’s head of restructuring and recovery.
'For those who have not set aside sufficient funds, these bills could prove very costly indeed.
'However, as order books start to look healthier, companies need to be very careful not to get sucked in to a cycle of overtrading, which can take its toll on working capital.’
Giles Frampton, president of industry body R3 said: ‘The long-term corporate insolvency trend is downwards and activity has been very quiet recently. However, it is encouraging to see relatively greater use of business rescue procedures – rather than liquidations – in the last quarter following recent falls.’
The number of people who became insolvent in England and Wales decreased by 4.6% overall during the quarter compared with July to September 2013.
This is driven by decreases in the number of bankruptcy orders (down 18.7%), with levels of bankruptcy now the lowest since 1999. There was also a drop in individual voluntary arrangements (IVA), which were down 1.9%. Debt relief orders increased by 2.7% compared with July to September 2013.
Frampton said that earlier spikes in personal insolvency numbers were partly due to people switching into formal processes – usually IVAs – having previously been in unrecorded debt management plans, while the latest figures suggest the bulk of this ‘switch’ has now taken place..
He also predicted a change in the make-up of the corporate insolvency landscape in the next year as the 2013 Enterprise and Regulatory Reform Act will make it easier to put businesses into a business rescue procedure by preventing key suppliers, like IT providers, from changing their terms of supply to struggling businesses.
‘This will save more viable businesses once the relevant parts of the Act come into force,’ Frampton said.
