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Insolvencies in region reach a four-year high.

Byline: GRAEME WHITFIELD Business editor @Graemewhitfield

AFOUR-YEAR high in companies going out of business highlights a number of underlying problems in the economy, a North East expert has said.

New figures from the Insolvency Service has shown there were 4,308 company insolvencies in the third quarter of 2018 - a 19% increase on the same period last year and the first time the figure has gone above the 4,000 mark since 2014.

Andrew Haslam, North East chair of the insolvency trade body R3, said the outlook for many businesses in the region was difficult as Brexit, the crisis on the High Street and other factors have begun to bite.

He said: "The key causes of insolvencies seen by the insolvency profession are familiar. Rates problems, particularly for retailers, are frequently mentioned and the Chancellor's rates-relief announcements in the Budget have come too late for some.

"It's worth noting high-profile insolvencies can have a knock-on effect for others, too.

"For every struggling retailer unable to pay its debts, there will be numerous suppliers as well as shopfitting or delivery firms who come under pressure, while there have been well-publicised troubles in sectors like construction, too.

"R3 members have picked up on a number of extra concerns recently.

"Uncertainty over the shape Brexit will take has led to decision-making delays at some large companies, which will have had an impact on their smaller suppliers expecting new contracts or investment.

"Infrastructure problems have started to be mentioned, too.

"Traffic congestion is hurting companies, especially those based in city centres, in terms of longer delivery times and loss of productivity.

"The outlook for businesses is still difficult. Negative consumer confidence, high personal debt levels, renewed upwards pressure on wages and possible future interest rate rises will all have to be navigated."

Haslam added: "On the insolvency front, yesterday's Budget saw the Government announce plans to partially restore HMRC's preferential position in insolvencies, a move which could have unintended consequences for insolvency numbers. "With HMRC legislating its way towards the front of the queue for creditor repayments after company insolvencies, other creditors will receive less back after insolvencies, with a knock-on effect for their own finances.

"The change may also affect banks' appetite for lending to distressed businesses, jeopardising business rescue. This will be something to watch in 2020 when the changes are due to kick in."

Nationally, an increase in underlying creditors' voluntary liquidations (CVLs), which were at their highest level since the first quarter of 2012, pushed up the company insolvency figures. CVLs happen when shareholders of a company pass a resolution that a company is wound up voluntarily.

The construction industry had the highest number of insolvencies in past year, followed by the wholesale and retail trade.

Elsewhere, a survey from the CBI found retail sales growth had slowed noticeably in the year to October following four consecutive months of firm sales growth during the summer.

Sales were found to be weak in all sectors of the retail industry.

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Publication:The Journal (Newcastle, England)
Date:Oct 31, 2018
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