Last year saw the reversal of a six year downward trend in levels of insolvency for British businesses, as there was an uptick in companies entering into administration in the second half of 2016, according to analysis from KPMG
The numbers, taken from notices in the London Gazette, show that 1,174 companies, or groups of companies, entered into administration across the UK during 2016, compared with the 15-year low of 1,111 in the previous year. The peak was seen in 2009, following the financial crisis, when 3,376 companies went into administration.
Blair Nimmo, KPMG’s UK head of Restructuring, said: ‘2016 was a game of two halves, with the first six months of the year continuing the downward trend in corporate insolvencies. However, numbers started to creep up in the second half of the year, no doubt in part a reflection of the uncertainty created by the result of the EU referendum and the fluctuations seen in the currency markets.’
KPMG’s analysis of which sectors were most vulnerable in 2016 suggests that the construction industry was particularly impacted as increasing costs for imported raw materials squeezed profit margins. In total, 174 firms within the construction sector entered into administration over the course of the year. Other sectors that were prominent in the KPMG research included retailers (89), social care and nursing homes (19), and companies from within the hotels and leisure sectors (26).
Nimmo said: ‘While construction, social care and consumer-facing businesses felt the heat in 2016, it is particularly interesting to note that the expected hike in oil and gas related insolvencies, due to the low oil price, simply has not materialised. Whilst significant challenges remain in that sector during 2017, there is no doubt that the outlook is now a little more positive than was the case this time last year.’
Looking ahead to 2017, Nimmo said he expects the numbers of insolvencies to tread a steady path.
‘While there are many positive signs for 2017 including continued GDP growth, low unemployment and low interest rates, and increased order books in some sectors, I still sense a degree of uncertainty such that I suspect businesses will continue to adopt a cautious approach until matters become clearer after the triggering of Article 50. Inflationary pressures will also start to play their part.
‘So while I do not foresee any sudden spike in insolvency numbers on the horizon, I would not be surprised to see the slight steady uptick in administrations continue over the months ahead.’
