How will 2017 Shape Corporate Insolvency?

After the upheavals of 2016, it is understandable that the New Year has been welcomed in most quarters with something of an air of trepidation. A typical example of the prevailing mood is the publication of a report from R3, the Association of Business Recovery Professionals, which paints a sombre picture of how insolvency and recovery practitioners see 2017 going.

According to its survey of 364 members, just under three quarters (72 per cent) expect corporate insolvencies to rise in the coming year.

No prizes for guessing why. It is going to be hard to avoid the B-word, not just for the next 12 months but potentially for years to come, and it features prominently in the opinions of insolvency professionals gauged by R3.

The reasoning is clear. With Article 50 yet to be triggered, and a two year period of negotiations to follow that before Brexit finally happens, the UK economy has been plunged into a troubling whirlpool of uncertainty.

As Andrew Tate, R3’s president points out, the effects of that are already upon us – a weak pound is already hitting finance and import markets hard, and that is before an expected rise in inflation.

What is slightly surprising is that, according to R3 figures, around a third (30 per cent) of corporate insolvency practitioners say they have seen an increase in inquiries since the Brexit vote in June. Almost half (45 per cent) say they have already heard businesses mention Brexit as a reason for getting into difficulties.

This was not the picture painted by official Insolvency Service figures for Q3 last year, which reported a highly modest hike in company insolvencies of just 1.1 per cent year on year in the immediate aftermath of the June 23rd ballot.

What it is true to say, of course, is these things take time to filter through. Uncertainty is never a good thing for business, so until the exit negotiations are completed and everyone knows where they stand economically, it would be no surprise to see insolvencies increase.

However, you wonder if there ends up being a sense of self-fulfilling prophecy about all the doom and gloom.

Insolvency practitioners face their own uncertainties as Brexit takes its course. 2017 will see change in the form of new Insolvency Rules to be rolled out in April, although these largely formalise practices and regulations already well established. The changes are largely aimed at bringing communication and case handling up to speed with the digital age, making corporate recovery more efficient and responsive.

Other changes due to come into effect this year are changes to the European Insolvency Regulations, which govern rules on cross-border insolvency cases within the EU. For British practitioners, of course, getting used to these new regulations will be a temporary thing – come Brexit, the UK will be outside their remit.

This will significantly hamper British practitioners in their ability to pursue insolvency cases within the EU, as they are able to now, because they would no longer be recognised in those jurisdictions. It would also mean that proceedings in Britain would not automatically be recognised in other EU states.

How these changes pan out, along with the host of other legal frameworks affecting corporate insolvency and recovery – employment law, financial services law, CJEU case law – which will undergo upheaval, is simply a case of wait and see.

If your business needs advice on any issues concerning debt management, cash flow or insolvency, our Corporate Recovery team is committed to providing friendly support and advice with no obligation.