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Insolvency on the rise
30 October 2018
New figures released today show that corporate insolvencies in quarter three jumped by 19.3 per cent (4,308 companies) compared to the same quarter last year.
The figures come a day after the Chancellor proposed new rules at the Budget which could see lenders and trade creditors receive lower returns in the event of a company going bust.
The Insolvency Service reported that company liquidations in Q3 were up 20.7 per cent and administrations jumped 25.9 per cent versus the same period in 2017.
Companies in the construction and wholesale/retail sectors continued to be among those experiencing the greatest levels of distress.
Graham Bushby, head of RSM's restructuring team said: “Nervousness around Brexit, high business rates and international trade tensions all seem to be having an effect on the level of corporate insolvencies.
“At the same time, the Chancellor in his Budget hit the potential returns that everyday trade creditors may receive when a company enters an insolvency process.
“Many people still believe that HMRC has preferential status for any taxes owed in the event of an insolvency, but in fact this was abolished several years ago.
“However, in the briefest of mentions in his Budget, the Chancellor effectively wound back the clock, the result being that from 6 April 2020, HMRC will once again have preferential status for taxes collected and held by businesses on behalf of taxpayers.
“This will clearly reduce the level of potential recovery for a lender under its floating charge and more than likely also reduce the level of funds made available for unsecured creditors.
“This move will be very unwelcome news to lenders and trade creditors, particularly at a time when insolvencies are on the rise.”
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