Insolvency ‘domino effect’ leaves one in four businesses financially exposed

A quarter of UK companies have suffered a hit to their finances following the insolvency of a customer, supplier or debtor in the last six months, new research has revealed.

The study, from insolvency and restructuring trade body R3, found the financial impact of the insolvency of another business was described as “very negative” by one in 10 UK companies, and as “somewhat negative” by 16% of respondents.

The figures are evidence of the so-called ‘domino effect’, where one company’s insolvency will increase the insolvency risk for others.

Story continues below
Advertisement

 

Meanwhile, at operator level a spate of CVAs among high-profile restaurant chains has had an inevitable slowing effect on the supply chain.

R3’s Andrew Tate said: “No business exists in isolation, and every headline-grabbing corporate insolvency will have consequences for numerous other enterprises. In the worst-case scenario, the loss of a vital business relationship can lead to a company’s own insolvency in turn – the ‘domino effect’ in action.”

Mr Tate said that often, the problems caused by the domino effect are ones that firms are able to weather, albeit with a hit to future turnover and profitability.

“The insolvency and restructuring profession has a role to play in helping to steady firms at risk of the domino effect, a task that would be easier with access to a more flexible set of tools, such as the business rescue ‘moratorium’ proposed by the government back in 2016. Despite the help a moratorium would offer a company dealing with a sudden shock, very little real progress has been made to introduce it.”

Authors
TAG CLOUD ,

*

Related posts

Top