Friday 28 October 2016 2:30 pm

Brexit hasn’t impacted the number of companies going pop too much. Yet…


Oliver Gill is a City A.M. reporter, you can contact him on oliver.gill@cityam.com

Oliver Gill is a City A.M. reporter, you can contact him on oliver.gill@cityam.com

The number of companies going bust is edging up as experts predict that it is only a matter of time before numbers may rise more rapidly as a result of the Brexit vote.

The latest data, released by the government's insolvency service, reveals that there were 3,633 corporate insolvencies in the three months since Britain's decision to leave the EU, 80 more than the three months that proceeded it.

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There was a slight increase in the number of administrations – from 340 to 352 – during the quarter. And Glyn Mummery, a partner at FRP Advisory, said that this was a trend that was likely to be on the up as a result of the pound's fall from grace:

Sectors which have been reliant on cheap EU based labour as a way of keeping a lid on costs and therefore profit margins may struggle as their end buyers are not always willing to absorb those extra costs from a weaker pound.

Mummery added that sectors that could see a spike in administrations are construction, food and agriculture, and hospitality. Also the those dependent on public spending, such as care homes, could be put under pressure.

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What happens when a company goes into administration?

An administration is where an insolvency professional is put in control of a company to shield it from anyone that it owes money to – i.e. its creditors.

The administrator must try and run the company to maximise the returns for creditors through a number of strategies which include closing down operations in full, closing down in part, selling off parts of the business, selling off the whole business or continuing to trade the business.


Moore Stephens' restructuring partner, Jeremy Willmont said: “Brexit has been a dose of reality for businesses, and we’ve started to see more directors recognising that time might be up for them and the debts they might have been carrying for years.”

However, Brian Johnson, an insolvency partner at HW Fisher & Co, did not believe that Britain's decision to leave the EU had changed things:

“What most insolvency practitioners agree on is that Brexit has currently had no impact at all on insolvency levels. The markets may have gone a little crazy in the wake of the vote but the economy, in the words of the Chancellor, has remained resilient.

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Johnson did admit though that there could be some problems in the months to come:

However, there is some concern amongst insolvency practitioners that ultimately the uncertainty surrounding Brexit will begin to impact on insolvencies over the next 18 months to two years.

 

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