Responding to the corporate insolvency statistics for England and Wales released this week by The Insolvency Service, Graham Bushby, Baker Tilly’s National Head of Restructuring and Recovery said:
‘With company insolvencies at their lowest level since the fourth quarter of 2007, the latest figures from the Insolvency Service present a positive picture of corporate financial health in England and Wales. However, the statistics don’t really tell the whole story as there are many companies still experiencing significant financial distress and a number of reasons why we could see insolvency levels rising again within the next one to two years.
‘We have seen a trend for the banks to sell off their non-core bad debt books to private equity groups. As these groups work through those debt books, they are prioritising those firms that they can realise assets from first. However, as they start to focus on the more distressed companies in the portfolios, they may then be left with little choice but to enter them into some kind of insolvency procedure.
‘We are also seeing a significant number of companies servicing their debts on an interest only basis. By doing this many of them are avoiding entering into insolvency procedures, but they are also failing to pay off any capital. If we see a rise in interest rates and inflationary pressures beginning to emerge, this could leave many companies in a vulnerable position.
‘A more buoyant market also brings with it a risk of overtrading, so companies need to keep a close eye on their cash position to ensure they don’t get into trouble.’