An overwhelming majority of insolvency and restructuring experts believe the UK’s decision to leave the EU will lead to a rise in corporate insolvencies in the next 12 months, and that the referendum result has already hurt businesses’ finances.
According to a survey of members belonging to insolvency and restructuring trade body R3, 72% believe the referendum result will cause corporate insolvency numbers to rise by the end of 2017, while 55% think business finances have been hurt since June.
Insolvency and restructuring experts are most concerned about a ‘hard Brexit’: 76% think it would lead to more corporate insolvencies and 60% think such a scenario would cause personal insolvencies to rise.
A ‘soft Brexit’ option, meanwhile, is seen as less risky for businesses and individuals.
Andrew Tate, president of R3, said: “The insolvency and restructuring profession is concerned about the impact leaving the EU will have on the financial health of UK businesses. Even before leaving, the effects of ‘Brexit’ are being felt: a suddenly weaker pound and increased business uncertainty are already causing problems.
“Insolvency practitioners are on the frontline when it comes to supporting struggling businesses, and a significant minority say they have seen an increase in businesses needing help since June. ‘Brexit’ is frequently coming up as an issue when businesses seek advice.”
Overall, 45% of survey respondents say ‘Brexit’ has been mentioned by businesses seeking help since June.
Three-in-10 insolvency and restructuring experts (30%) say they have seen an increase in businesses seeking their advice since the 23rd of June, of which a fifth (21%) say ‘Brexit’ has been a significant factor in this increase (another 57% say ‘Brexit’ is at least mentioned as a factor).
Survey respondents felt that a ‘hard Brexit’, which may involve the UK leaving the European Single Market, would have a larger negative impact on insolvency numbers than a ‘soft Brexit’.
37% of insolvency and restructuring experts believe ‘soft Brexit’ would lead to a “moderate increase” in the number of corporate insolvencies compared to current figures, whereas a similar 41% said the same for ‘hard Brexit’.
However, only 1% believe ‘soft Brexit’ will lead to a ‘significant increase’ in corporate insolvencies – but 35% say the same for ‘hard Brexit’. Two-in-five (39%) think a ‘soft Brexit’ will have no impact on corporate insolvency numbers, but only 8% think a ‘hard Brexit’ will have no impact.
Tate added: “The uncertainty around what final form ‘Brexit’ will take makes it difficult for businesses to plan ahead and assess what risks and opportunities they have. If businesses do run into trouble, they should seek advice as early as possible. Ignoring problems will not make them go away.
“Although it’s not a good sign that restructuring experts are already seeing more businesses seek their help, a rise in insolvency numbers is not inevitable. Recent years have seen an increasing focus in the insolvency and restructuring profession on rescuing businesses outside of formal insolvency procedures and that may help keep post-‘Brexit’ insolvency numbers down. A lot will depend on how the economy performs post-‘Brexit’, too.”