Legislators must not be fooled by the latest insolvency figures

 
John Cullen
Workers In Offices At Night In London
Insolvencies were down in the second quarter, but they're unlikely to stay down (Source: Getty)

The latest insolvency statistics released yesterday by the Insolvency Service paint a positive picture for UK businesses, renewing hopes that struggling firms can gain access to the help they need.

However, business owners and legislators must look beyond the figures and act now to prepare for future market shocks.

In the second quarter of 2016, the total number of company insolvencies fell once more, a trend largely driven by an 18 per cent reduction in compulsory liquidations – a shift which will be met with great relief from the business community.

This reduction in compulsory liquidations is a significant victory for business recovery.

Read more: Government to mull over what to do next for insolvency rules

Previously firms have been held back by a lack of viable turnaround options, with too many succumbing to failure under pressure from creditors and HMRC rather than being able to fulfil "time to pay" agreements.

This trend shows that access to advice is improving – the continuation of this is vital if struggling firms are to achieve recovery.

Although the continued fall in insolvencies is a positive sign, policymakers must not be lulled into a false sense of security. These figures don’t yet illustrate the impact of the Brexit vote on UK businesses and it is likely that insolvencies will rise in the second half of 2016.

Read more: MPs demand a change to rules over insolvency following City Link collapse

As the UK’s commercial banks look to tighten lending criteria, legislators must follow through with their pledge to increase the availability of turnaround finance.

With continued economic turbulence on the horizon, cash will once again be king for many businesses. Firms looking to achieve financial security must focus on protecting working capital.

The Brexit vote will no doubt claim some casualties, but by providing access to early advice and by being proactive as an industry, insolvency practitioners can facilitate business recovery.

Read more: More companies were struggling financially in 2015

Let’s hope that additional measures are put in place to ensure that businesses retain access to any external finance they need to survive.

A government consultation on potential changes to the corporate insolvency framework closed on May 25.

We all need to urge policymakers to consider all feedback in earnest – changes must be implemented now to guard against the financial effects of Brexit.

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