Insolvencies in Britain are increasing by the day. British high streets are losing retailers, consumers are losing their favourite eateries and the construction industry is still clearing up financial debris left by Carillion. While Company Voluntary Arrangements (CVA) have become popular with companies in financial distress, the priority should be focussed on preventative techniques as well as on recovery.
When Carillion collapsed, it wasn’t just direct suppliers that were affected, but companies all the way down the supply chain. According to new research by the insolvency practitioners’ trade body R3, around 10 per cent of companies experienced “very negative financial impact” on account of another firm’s demise.
The research called this the “domino effect” where one firm’s collapse leads on to the collapse of its neighbours. This highlights the vulnerability of the supply chain, where none of its businesses are independent of each other. This should act as a further incentive for business to maintain accurate financial records, as their own financial difficulties could lead to the collapse of that shop around the corner.
At the Credit Protection Association, we urge our Members to focus their attention on their finances and cash flow. We provide our Members with credit checks and status reports to show up the late payers and give them a chance to eradicate them before they do further damage.
The construction industry was the worst hit when Carillion collapsed, with 47 per cent of companies affected. The construction giant went under owing billions of pounds including at least £800 million to subcontractors in January.
R3’s Andrew Tate said the collapse “was a real shock to the economy and particularly that sector” but that builders were also suffering from Brexit-related uncertainty and a general slowdown in consumer spending and the housing market.