Insolvencies down but more profit warnings loom

1 August 2014

Insolvencies down but more profit warnings loomThe number of company liquidations in England and Wales between April and June 2014 has decreased compared with the same period last year.

Official statistics published by the Insolvency Service show that administrations, company voluntary arrangements and receiverships were also lower than a year ago. However, the number of individuals who became insolvent in England and Wales increased compared with April to June 2013.

Insolvency Service deputy chief executive Graham Horne said: “Over the last year, there was a 20% increase in IVAs while bankruptcies and debt relief orders decreased. Company liquidations decreased over the last three months, reflecting a similar trend over the last year.”

The latest insolvency figures from Experian show the same trend, with a drop in the UK businesses insolvency rate from 0.47% in H1 2013 to 0.44% in H1 2014. Regionally, the North West, East Midlands and Wales saw the biggest turnaround, with only Scotland and the South West seeing an increase in business failures.

However, the rate of insolvencies among the smallest firms – those with one or two employees – has remained the same. Companies with 100-500 employees saw the biggest improvement.

Max Firth, managing director, Experian Business Information Services, said: “The fall in insolvencies is in line with the more positive economic backdrop. A key component to surviving as a small business is to keep an eye on the fortunes of their biggest customers and key suppliers. If either of these go out of business then the impact will reach them too.”

However, accountancy firm EY has said that UK profit warnings have reached their highest second quarter total for three years. There have been 137 warnings in the first six months of 2014 the highest first half total since 2011.

High levels of competition, margin pressure and currency headwinds are denting profit expectations, says EY. 19% of profit warnings cited competitive or pricing pressures in the first half of 2014.

EY’s Keith McGregor said, “Price and competition pressures have intensified. While the recovery has boosted demand, it hasn't eradicated the austerity mindset of businesses or consumers. Moreover, the low level of insolvencies means companies are competing in a packed and competitive marketplace, lowering the normal level of returns.”

He added: “It could be another year of two halves. The second half of 2014 will pose a few more challenges than the first.”

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