Patterns, predictions and problems around the corner

June 29th, 2018
29 June

I promised a few weeks ago to return to my commentary on the sobering Q1 data from the Insolvency Service because there are statistics in there that give me cause for concern.  Despite working as an insolvency practitioner I am not a gloomy person by nature; I do, however, have a reasonable gift for crunching the numbers and identifying trends – and I am not particularly liking the trends that I am seeing. 

On November 6th last year I published a blog here called ‘The figures that show we may be heading for a tough time’ which briefly analysed some of the disturbing patterns among corporate insolvencies, and also personal insolvencies (among young people when looking at the North Staffordshire demographic).

There then followed:

 – The Carillion debacle (see my previous blogs) which had a particularly damaging effect on companies in the North Midlands.

 –  Another blog about the potential for a rise in CVAs (Company Voluntary Arrangements) ‘Why 2018 may turn out to be the Year of the CVA’.

 – And then last month an early look at the Q1 statistics ‘Why accountants need to keep looking over their clients’ shoulders’.

Looking more closely at the Q1 statistics, it is apparent there has been a big surge in company insolvencies in the construction industry – in fact, the highest number in any of the sectors with 2,688 building firms going under.

Staffordshire has a lot of people employed in the construction industry.

Indeed, on its website, Staffordshire County Council says “The construction sector is one of the largest local employers with approximately 42,000 jobs across Staffordshire and Stoke on Trent”.

The County Council adds that “with the economy improving, it is expected that employment in this sector will continue to grow until 2025”. I sincerely hope they are right about that but my fear is that they are not. They go on to list examples of large local construction companies, beginning with Carillion……..(nuff said).

As for my forecast that we would see a large rise in CVAs, the Insolvency Service notes an increase of 85.5% in CVAs over the previous quarter – but, before I get too big-headed about that bit of forecasting, it also adds that the percentage increase is exaggerated because the number of CVAs had been historically quite low.

They are, however, on the rise. Why is that important? Well, I can’t put it better than Ben Marlow, writing in the Business pages of the Daily Telegraph about the House of Fraser’s plan for a CVA in order to stave off bankruptcy.

Mr Marlow is somewhat sniffy about the 23-page presentation that House of Fraser produced for its investors – “essentially a begging letter” – and says that the document makes grim reading.

He then adds: “Management’s solution is the same as every other troubled retailer right now: a Company Voluntary Arrangement, which controversially allows it to ditch struggling stores. CVAs are the high street survival tool du jour. House of Fraser wants to jettison roughly half its estate – a move that will trigger 6,000 job losses…”.

I disagree that its CVA is controversial – a CVA is a company survival device which, when used appropriately, can benefit both company and creditors (though not, in this instance, the landlords). We know a lot about CVAs at IPD. But it is the 6,000 job losses that will inevitably result that is significant.

This particular CVA will not cause substantial unemployment in Staffordshire (although House of Fraser stores in Birmingham, Wolverhampton and Worcester will close). But, you see, more CVAs are almost certainly on the way. And who knows where they will lead?

If you or your clients are considering a CVA, please get in touch.  They are tricky to get right and need some crafting to ensure they have the best chance of success.  I can help you with this…