Insolvencies hit five-year high

The latest insolvency statistics published by the Insolvency Service for the second quarter of this year have shown that insolvencies increased by 11.9% on the same period last year and are now at a five-year high, writes Debbie Cockerton.

There has been a surge in Creditor Voluntary Liquidations (CVL) and this process increased by nearly 7% compared to the first quarter of 2019.

UK businesses are going through very difficult times: consumers are not spending as much as they were, cash flow is being squeezed to the limits and consumer confidence is at an all-time low. There is also a lot of uncertainty regarding Brexit, which is having an effect on all businesses.

The high streets are struggling and most have empty shops, with many being taken over by charities. Some of the larger high street businesses have already entered some type of insolvency process and stores are advising that they will be closing some of their units over a period of time, with many announcing cutbacks.

If a company is having cash flow problems and are facing an uncertain future, then it would be better have a discussion with an insolvency practitioner sooner rather than later. This is so that they can be guided through the process and be advised on what the directors should do to keep them within the law, and to save disqualification proceedings being taken against the directors of the company

Directors may not know what warning signs to look out for, as they are busy trying to keep the business afloat. If they are having cash flow problems then they need to know what constitutes a wrongful trading action and any other problems that they could face. So it’s vital directors take advice earlier rather than later, to ascertain if they could be pursued for any claim in the event of insolvency.

We offer a free ‘Insolvency Insight’ guide to help identify firms in trouble. Email debbiecockerton@dcabr.co.uk if you would like to receive a free copy.

Liquidation can be commenced by the directors as well as the creditors and this will determine whether it is a voluntary or compulsory liquidation. Sometimes if there is no hope of saving a business it may be kinder to close the it down and liquidate the company. Directors should take advice, as this can limit their exposure to any possible prosecution of wrongful or fraudulent trading and all other ‘nasties’ that come from running your own business.

If liquidation occurs and the company is forced to close, the directors may wish to start up again. The insolvency practitioner will be able to give advice on how not to be involved in any phoenix scenario and the former staff will be given advice on how to claim for any unpaid wages and redundancy.

We can also give advice on laying off the staff and what their rights are and how to make a claim under the Redundancy Payments Scheme.

• Debbie Cockerton is a Partner at DCA Business Recovery. The dedicated ICPA Freephone Hotline (0800 066 2540) is open 365 days a year, from 8am to 8pm

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