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Will Brexit lead to an increase in the number of insolvencies?

It has been reported that more than two thirds of insolvency professionals believe a “hard Brexit” would lead to more corporate insolvencies, according to insolvency trade body R3.

Just before Theresa May’s Brexit speech confirmed that the UK will leave the European single market, R3 published its survey of nearly 400 professionals from the insolvency profession, which forecasted the effects of Britain leaving Europe. 35 percent of those interviewed said a “hard Brexit” would lead to a significant increase in corporate insolvencies. Less than 10 percent of the respondents said they thought it would have no impact on insolvency numbers.

Reports have suggested that the number of administrations in 2016 increased from 2015. The first 6 months of 2016 continued to see a decline in insolvencies, whilst the second half of 2016 saw numbers rise.

The construction industry was worst hit which was particularly due to an increase in costs for imported materials which had an impact on company’s profit margins.

It would seem that there is uncertainty in some market sectors which has made it difficult for businesses to plan ahead. Clearly the fall in the Pound against the Euro and Dollar has had a detrimental impact on some businesses.

It is possible that the uncertainty will deter foreign investors from investing in the UK due to higher costs for accessing the single market.

Turmoil in the financial markets may encourage banks to hold back on lending, leading to a decline in credit making it harder for firms to invest in the UK.

Only time will tell what impact Brexit will have on the economy but it would appear that we could see an increase in the number of insolvencies. I have recently dealt with two insolvencies where the directors of the failed companies have cited Brexit as the principal cause for failure.

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