Insolvencies spike as transport resilience crashesby
Corporate insolvencies have increased by 111.6% from March 2021, according to the latest statistics from the Insolvency Service. The transport sector in particular has seen a rise in businesses putting the brakes on their operations.
“The alarming rise in insolvencies in this week’s stats from the Insolvency Service suggests that many company directors have seen the increasingly difficult short-medium term economic prospects as something they won't be able to overcome – and have closed their companies ahead of time,” says Colin Haig, president of insolvency and restructuring trade body R3 and Head of Restructuring at Azets.
“The figures reflect the challenge businesses in England and Wales continue to face. They have gone from trying to trade through a global pandemic to trading while the costs of fuel and energy rise, and while staff are concerned about whether their wages can cover the increased costs of living. Both firms and individuals have barely had time to draw breath.”
For March 2022, of the 2,114 registered company insolvencies there were 1,844 creditors’ voluntary liquidations (112% increase compared to a year ago, and 62% higher than pre-pandemic levels in March 2019); 131 compulsory liquidations (representing a rise of 297%); and 129 administrations (a rise of 74%).
“These figures would support concerns raised since 2020 that the grants/lending would only serve to allow business owners to ‘kick the can down the road’ rather than ultimately rescuing the businesses,” said Margaret Carter, R&I director at Azets.
Going to the wall
In the transport sector, the number of firms going to the wall has risen 34% for the period January to March 2022, and in April alone 104 firms in the sector have already failed, according to research by RedAlert, the petitions, receiverships, administrations and resolutions service.
“The overall rise in transport insolvencies is being driven by an increase in the number of road freight and removal services companies entering an insolvency process,” says Haig. “These businesses have been hit by lockdowns, protocol changes and driver shortages, as well as significant changes to the supply and demand of goods caused by the pandemic.
“Government measures will have helped many of them stay afloat despite these issues, but with soaring fuel costs now an additional problem to contend with, it’s little wonder that these pressures have been too much for many to bear, with many firms becoming insolvent as a result.”
For an insolvency practitioner stepping into an insolvent transport company as either an administrator or liquidator, one of the greatest challenges they face is securing control of the assets, whether that be vehicles, vessels, or containers as these are likely to be dispersed across several sites – and often across the world.
“There is always a risk in transport insolvencies that creditors will try to seize control of these assets, making creditor and stakeholder engagement even more critical than in insolvencies in other sectors,” says Haig.
All at sea
Following the recent antics of P&O Ferries, the resilience and solvency of the sector has been brought into sharp focus. By his own admission, P&O chief executive Peter Hebblethwaite says that to re-employ the 800 sacked workers would “deliberately cause the company’s collapse”, after business secretary Kwasi Kwarteng referred the matter to the Insolvency Service for investigation.
While many commentators say that Hebblethwaite would have taken advice before firing 800 workers, many employment lawyers have been quick to point out, “he clearly didn’t listen to it!” Hebblethwaite confirmed at a recent transport sector committee that he had broken the law by failing to consult on the sacking of 800 staff on the spot.
Perhaps Hebblethwaite naively thought that P&O still held considerable power as it once did when it was market leader in 1970s-80s. At that time, it was highly sought after as the employer of choice – particularly gratifying for a business founded in 1837 as The Peninsular Steam Navigation Company, before adding “Oriental” to its title in 1840. But, as some insolvency practitioners are saying, “Given its long and solid history, it is somewhat unfortunate that the antics of P&O Ferries are causing so much reputational damage to the P&O brand.”
Fearful that the confusion will impact its own revenue, P&O Cruises (owned by Carnival plc) has been quick to distance itself from its P&O namesake by taking out full-page ads (at great expense) in the national press to calm passenger fears, highlighting that “at P&O Cruises we always treat our staff and crew with a great deal of respect”.
Elsewhere in the transport sector, supply chain woes caused by fuel shortages, the war in Ukraine, and a global shortage of semiconductor chips are sending freight costs sky high.
“Shipping costs have increased significantly following a period of relative stability during the previous 10 years,” says Jimmy Saunders, managing director of Kroll Restructuring Advisory. “Steel and aluminium prices have hit a 10-year high, energy prices are surging, and many businesses are worried about future debt servicing costs.”
Reading the signs
“Regardless of the sector, it doesn’t take long for margins to be squeezed and financial distress to tip over into insolvency, so seeking advice at the first sign a business is struggling is critical,” advises Haig.
As transport secretary Grant Shapps pointed out in his speech to the House of Commons on 30 March 2022, Hebblethwaite, in front of Parliament, had “set out how he deliberately broke the law, and, in an act of breath-taking indifference, suggested he would do the same thing again.” As such, Shapps said, he had asked the Insolvency Service to consider disqualifying the P&O chief as he believes “Peter Hebblethwaite is unfit to lead a British company.”
Such a veiled threat for business is a sobering thought for every accountant trying to keep their clients on the straight and narrow. Regardless of size, reputation and stature – fall foul of the law, and you will be held accountable.