
Despite a 15.4% decline in financial distress since Q4 2023, company insolvencies in the UK remain high due to debt burdens from increased interest rates. Ongoing economic pressures have put more than 40,000 businesses into Critical distress – a 20.1% rise compared to Q1 2023. Among the top 20 industries grappling with uncertainty, Professional and Support Services rank second, trailing closely behind construction.
Nearly half of businesses in critical financial distress are concentrated in In sectors like Real Estate, Financial Services, and Support Services – signalling broader economic apprehensions. Whether it’s funders taking more proactive measures to safeguard their interests, HMRC’s updated rules and regulations, or stakeholders exerting more authority, the mounting pressure is evident. Let’s take a look at some recent developments to understand how this affects the distressed business market.
Sector Overview: Professional Services in the UK
Government insolvency data released recently revealed that there were 1,815 company insolvencies in England and Wales in March 2024. While this period typically witnesses a rise in business insolvencies compared to the preceding months. However, the data for March 2024 presents an unexpected scenario with a significant 17% decrease compared to February 2024.
Despite initial optimism at the start of the year, 2024 has seen a persistence of the challenges faced by UK companies throughout 2022. Since the onset of the pandemic, hundreds of thousands of UK businesses have drained their financial reserves and accumulated unsustainable debt burdens, which may now be overwhelming for many.
Several factors contribute to this trend, including high interest rates, the unpredictable stance of the Bank of England, and the escalating cost of living crisis. Moreover, the increasing incidence of personal insolvency among individuals also adds to it. It is probable that this sector will witness a heightened number of administrations in the coming months.
Moreover, new research reveals that the South East is facing a heightened risk of insolvency, with 44% of its companies at risk. Just under half (49.3%) of professional services companies in the South East face an elevated risk of insolvency, the highest for any sector in the region and across the UK.
While high-profile failures often dominate news headlines, it’s important to acknowledge the impact of economic uncertainty on SMEs, comprising 99 percent of all UK businesses which mostly fall in the professional services category. However, what’s worth noting is that the percentage of administrations in relation to total insolvencies continues to climb.
In the insolvency funnel, administrations serve as a means of rescue, aiming to safeguard value (including jobs) and enable the restructuring of businesses. A sustained uptick suggests enhanced resilience in the economy. Despite enduring challenges for UK corporates, this trend indicates a forward-looking perspective.
Proposed Adjustments to FCA Guidance for Insolvency Practitioners
The UK Financial Conduct Authority (FCA) is consulting on proposed revisions to its Guidance for Insolvency Practitioners, aiming to provide clearer instructions and additional information for practitioners handling regulated firms. These amendments intend to update the current guidance to reflect changes in the legal framework and offer further clarity to IPs. Key changes include addressing the Consumer Duty and the Ipagoo ruling.
Notable proposed adjustments emphasise IPs’ knowledge of regulatory requirements, introduce a new email address for urgent administration appointments, and mandate notification of the FCA for all types of liquidation appointments. Although these changes aim to enhance clarity and coherence in the guidance, their practical impact may be limited.
Practitioners should review the final version upon its release to ensure compliance. Nonetheless, the draft guidance offers valuable insights into the FCA’s current perspective and largely aligns with expected IP practices.
HugHub’s Extranet Platform Bought by Endeavour Ventures After Administration
According to a filing published on Companies House, HugHub entered administration due to funding issues. The document indicates that the firm was placed into administration on 3 April 2024, with two administrators from Resolve Advisory appointed on 15 April. HugHub, incorporated on 13 December 2013, operates as a software solutions provider to insurers and brokers. Initially funded by founder John Shaw, with additional funding from director Andrew Holley, the company faced disruptions due to the Covid-19 pandemic.
A key customer terminated negotiations without placing an order, and external funding from a venture capital firm did not materialize, leading HugHub to seek alternative financing. Following a lack of funding in September 2023, the directors sought to control overheads and implemented wage deferrals and redundancies. Additionally, the board provided further funding through personal loans totaling approximately £55k.
Despite generating revenue from platforms, the underlying business was not yet cash-flow positive and relied on shareholder funding for operations and working capital. On 1st May, Andrew Holley, former chairman of HugHub, stated that forthcoming developments regarding the strategy for the Extranet Hub solution were underway.
Endeavour’s successful acquisition of HugHub’s digital quote platform offers multi-quote capability to insurance brokers in commercial lines. The acquisition follows Open GI’s earlier purchase of another of HugHub’s digital platforms in April. Bill Cunningham expressed delight in securing the investment, highlighting Extranet Hub’s potential to revolutionise insurance brokers’ operations globally.
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