Number of UK insolvencies booms by 20% over three years

20 March 2019 Consultancy.uk

Since reaching a decade low in 2015, the number of insolvencies has spiked by a fifth, according to the most recent available figures. Data gathered by the UK Government shows that 2018 hit the construction, admin, retail and manufacturing segments hardest, with Brexit uncertainty taking a toll on British businesses across a wide spectrum.

The UK economy is on the brink of a perfect storm. Over the last three years, flagging consumer confidence has been dented by stagnating pay, while the price of many products and services has been hit by inflation, thanks to rising import prices relating to the ailing pound. While increasingly high employment has helped to mitigate some of this impact, hiring intentions have cooled in 2019 as the country braces for the impact of Brexit – suggesting that the number of insolvencies may well spiral further upward over the coming 12 months.

According to Consultancy.uk analysis of figures from The Insolvency Service of the UK Government, the number of insolvency procedures in the UK saw a rise of more than 100 between 2017 and 2018, to sit at 17,439 at the end of that period. This came as the latest development in a worrying trend which has developed in the last three years, as the number of insolvencies in the UK has now increased by 20% since 2015. As a result, the correlation between the number of insolvencies in the UK and the Brexit process have become impossible to ignore.

UK businesses have seen a 20% rise in insolvencies since 2015

Before the 2016 referendum, the number of insolvency procedures in the UK had been falling relatively steadily for six years. While there was a small rebound upward in 2011, insolvencies in the UK fell by 39% between 2009 and 2015. Indeed, the number continued to decline until the final quarter of 2016, when it suddenly rocketed upward from 3,591 in Q3 to 5,541 in Q4. In the eight quarters which followed that, only one saw the number of insolvencies fall below 3,500, and that came before the second worst – of 5,289 – in Q3 of 2017. While 2018 did not see that level of insolvencies at any point, every quarter was close to containing 4,000, and increased steadily in the second half of the year.

Overall, the UK saw steep rises in most varieties of insolvency procedures, except for receivership appointments – which once again declined to just one for the year. Company Voluntary Arrangements (CVAs) plateaued to an extent, having become a popular method of staving off administration in recent times, as they allow embattled companies to avoid administration while offloading underperforming stores and reducing rent costs. This latter point seems to have become a sticking point for their use, however, as seen with House of Fraser in June 2018, meaning their popularity only grew by 49 on 2017 figures.

Insolvencies per quarter 2015-2018

At the same time, with no way of buying time to avoid the collapse of their companies, other lines of insolvency saw much heavier spikes in 2018. The number of administrations looks set to break the 1,500 mark in 2019 at its current rate of growth, while compulsory liquidations jumped upward by more than 300 cases – more or less replacing the fall in the number of voluntary liquidations which 2018 saw.

Industrial overview

Interestingly, while it is easy to see why some would expect the current economic environment to create big business for restructuring and corporate rescue consultants, this has not been the case. Contrary to the expectations of what would occur in the wake of a financial crisis, the insolvency market has been relatively static. At Begbies Traynor, for example, this impacted on the firm’s profit line, and as a result it is chasing a rapid agenda of diversification.

Number of different types of insolvency in UK 2018

This may well change going into 2019, however, as a recent report, also from Begbies Traynor, found that the number of businesses in significant distress across the UK now stands at 481,000. Should things not improve drastically, the figures surely will likely lead to a boom in bankruptcy & restructuring service demand, even if only half of those firms are forced into insolvency proceedings. This came during a particularly concerning leap of 15,000 firms admitting financial distress during the final quarter of 2018, amid a winter of uncertainty that saw the likes of HMV collapse into administration, and left some 200 shopping centres on the brink of administration.

Indeed, this would continue the trend which has seen retail become one of the most common scenes for insolvency cases. While the 2,608 insolvencies reported by The Insolvency Service of the UK Government did see retail become one of the highest areas of insolvency, however, it was by no means the highest.

UK insolvencies per sector 2018

Construction played host to some 3,940 insolvencies throughout 2018, as even while demand for new homes across the UK boomed, it was plagued by Brexit pressures and an economy plagued by sluggish productivity. Meanwhile, admin and support services was similarly hard stung – with its position further down the supply chain seeing it hit by the downturns of multiple other sectors, making it the second most common arena for insolvencies. Mirroring that, manufacturing also saw a high number of insolvencies, as poor demand in retail and construction impacted the wider business ecosystem.

With the UK now seeking a period of extension to conclude the Brexit process, the sustained period of uncertainty that has impeded the performance of many UK businesses is all but guaranteed to persist, while afterwards, highly challenging economic times seem to be on the horizon. At the same time, a hike in business rates, pension enrolment, and unsecured debt will all play a role in placing businesses under financial strain.

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Retailer Steinhoff suspends former CFO's consultancy

31 August 2018 Consultancy.uk

Steinhoff International has suspended consulting agreements with former CFO, Ben la Grange, and ex-Director Stehan Grobler as an investigation by Big Four firm PwC into accounting irregularities continues at the retail group. The pair had been retained on consultancy deals in order to ensure a stable handover, as the Poundland owner looked to stabilise, having been rocked by a major auditing scandal.

Steinhoff International is an international retail holding company that deals mainly in furniture and household goods, and operates in Europe, Africa, Asia, the United States, Australia and New Zealand. The South African-based, Frankfurt-listed owner of familiar UK high-street discounter Poundland is currently embroiled in South Africa's biggest ever accounting scandal, appointing Big Four firm PwC to investigate its accounts, focusing on certain off-balance sheet structures and deals with related parties to find if some assets, revenue and profit figures had been overstated.

PwC is just one of a number of professional services firms which have been involved in attempts to salvage the firm, though. The group’s share price had already experienced a nose-dive of 85%, wiping more than $10 billion off its market value, following the disclosure of the company’s accounting problems, so Steinhoff engaged Moelis and AlixPartners “to assist on liquidity management and operational measures.” At the same time, as the organisation looked to steady the ship, it also drafted in its former CFO on a consultancy arrangement.

Retailer Steinhoff suspends former CFO's consultancy

Ben la Grange, who joined Steinhoff in 2003, had become an executive board member and Chief Financial Officer by March 2013. Almost five years later, he resigned the role, shortly after PwC was called in, however he was retained by Steinhoff on a short term basis, alongside former fellow Director Stehan Grobler, to help complete the 2017 financial statements and ensure a smooth handover.

Now, a Steinhoff spokesperson has confirmed that both have now been suspended, in the light of the on-going investigation by the Big Four professional services firm. They stated, “Ben la Grange and Stehan Grobler (the latter via Hoffman Attorneys) have been on short-term consultancy arrangements since the beginning of the year… As part of the group’s on-going investigation the group has decided to suspend these consultancy arrangements.”

The PwC investigation and report is expected to be completed by the end of the year, and Steinhoff intends to publish the firm’s findings once it has ensured that there is nothing in the document which could jeopardise the group’s rights in any further actions. Meanwhile La Grange has appeared before the finance committee of the South African Parliament to avoid being subpoenaed, after his lawyer had informed the committee that he could not make a hearing  on 29th August. The select committee investigating Steinhoff’s troubles has been keen to speak to the former CFO, as he was in charge of the finance function, at a time when the business was expanding rapidly both in Africa and internationally. He was not joined by former CEO Markus Jooste, however, who will give evidence under oath in September.

In July, Steinhoff reached an agreement with creditors on a debt restructuring plan. It is currently working on its implementation as well as agreed corporate governance changes, which should be implemented over the coming weeks. Elsewhere, Steinhoff's auditor, Deloitte, is facing several law suits from a number of angry Steinhoff shareholders. At the start of August, a consortium of law firms applied to launch a class-action lawsuit in the South Gauteng High Court on behalf of investors in Steinhoff, seeking damages that could potentially run to as much as R185 billion, on behalf of all investors who purchased Steinhoff shares in the period from at least 26th June 2013, up to the date Jooste resigned, on 5th December 2017.