Corporate insolvency trends – and impact on auditors

Published 28 November 2014

As the graph indicates, the latest figures published in July 2014 show that company insolvencies are continuing to fall in England and Wales. The number of companies entering administration decreased for the fourth consecutive quarter, and was 34.9% lower in Q2 2014 than the same period a year earlier. The liquidation rate in the 12 months ending Q2 2014 (not shown on graph) was at its lowest ever recorded level. Meanwhile, the number of companies entering creditors' voluntary liquidation continued to decrease from its recent high in 2013, and was 18.1% lower in Q2 2014 than the same period a year earlier.

Claims against auditors have traditionally been counter-cyclical. As the number of insolvencies increases, claims against auditors brought by liquidators/administrators of failed businesses become more likely, as do claims by third parties who have suffered losses as a result of the insolvencies. If the upturn continues the next period is key for auditors of struggling businesses as, historically, insolvencies have followed an upturn as banks are encouraged to call in corporate loans to realise the value in better performing assets acting as security.