Construction sector revealed to have highest number of corporate insolvencies


The Insolvency Service Report published on 28 October 2016 revealed that the Construction sector had the highest number of corporate insolvencies in the third quarter of 2016 in England and Wales.

In contrast, the sectors with the least number of corporate insolvencies are (jointly):

  • Activities of extraterritorial organisations and bodies (having held this spot for 11 executive quarters)
  • Public administration and defence; compulsory social security (as a joint entry for the first time, however, having previously been joint bottom in 2 previous occasions out of the last 11)

On average, the number of corporate insolvencies each quarter (in the years 2010 to Q2 of 2016) is:

2010-2016 Average

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In previous years, the most (in number) of corporate insolvencies occurred in the first half of the year (possibly the post-Christmas blues combined with a tax effect), with the least number occurring during October to December (holding off just before Christmas): 

Years Use

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Returning to the results by industry sector, we can see that over the years, the greatest risk of corporate failure still lies amongst the construction sector (click for a graph of insolvencies by sector 2010 – Q2 2016)
 
Although these statistics and analysis demonstrate the industry sectors facing difficult times, it does not show the underlying cause of the insolvency.

It cannot only be attributed to “mismanagement” or “owing too much money”. There are various reasons as to why a company could be struggling financially, including:

  • Falling prices
  • Falling demand for goods / services
  • Increased competition from home & overseas competitors leading to:-
  • Decreased market share
  • Increased burden of requirements to spend monies on non-core trading activities (for example, taxes, insurances, compliance with a plethora of rules and regulations, etc.)
  • Increased cost of materials as more has to be imported from overseas or the purchaser has to try and absorb the suppliers own increased costs.
  • Increased cost of labour as Living Wage rates rise
  • Lack of finance available to invest in growth

All of the above factors have a direct impact on cash flow which can result in corporate insolvency.  

Taking into consideration what sector faces the greatest risk of corporate failure, and what months of the year face the greatest likelihood of corporate failure companies can start to prepare for how they will deal with those times.  “Fail to plan and you plan to fail” as the saying goes.

On a positive note…

Overall, on a year-by-year basis the number of corporate failures is declining (although 2016 figures only contains 2 quarters):

Broken down by quarter, the trend becomes more apparent:

Total No . Of Corp Insolvs .Use

No Of Corp . Insolvs . Qtr.

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The overall market place has seen a tightening up of credit terms being provided.  Organisations are becoming more risk averse when it comes to proving a line of credit to a customer.

Financiers are supporting their corporate customers slightly more, and not making as many high risk lending decisions.

Companies generally have greater awareness of their own performance and are able to alter trading activities, cutting costs and managing their cash far better.

Our advice would be to keep a close eye on your company's performance to avoid becoming one of next year’s statistics.

For further advice and guidance please contact our team who not only understand the issues affecting you and your business, but are experts in their field and can deliver advice tailored to your exact situation.

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