Insolvency numbers on the rise

Bad news for glass-half-full types: the number of company insolvencies jumped by 12% last quarter...

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Last Updated: 31 Aug 2010

According to the Government’s Insolvency Service, 3,560 companies went into liquidation in England and Wales between April and June. That’s an 11.6% increase on the first three months of 2008, and 15% higher than the same period last year – leading to speculation that the annual total could be 20% up on 2007’s figure.  In addition, a further 938 companies went into administration, a 60% jump on this time last year. Clearly the credit crunch is really starting to bite…

No prizes for guessing why these numbers are heading in the wrong direction: ‘Market conditions are becoming tougher, especially with credit scarcer and more expensive to secure and commodity costs skyrocketing,’ says Ken Baird, who’s head of restructuring at law firm Freshfields. ‘These factors have triggered a marked downturn in fortunes across sectors, with companies already walking a solvency tightrope being among the first to fall over the edge,’ he added cheerily.

Accountancy PwC, which published its own advance take on the figures yesterday, reckons that retail and construction insolvencies are both at a five-year-high, with the two sectors recording a 28% and a 35% rise respectively last quarter (by contrast, manufacturing insolvencies were at a five year low, presumably because of the pound’s recent weakness against the euro). It expects the problems to escalate, particularly since many executive teams won’t have much experience of managing in a downturn.

But although these figures sound alarming, they’re perhaps not as bad as they might appear. According to the official figures, just 0.6% of active companies have gone into liquidation in the last 12 months – that’s equivalent to 1 in 166 firms, which doesn’t sound too disastrous to us. Or it might just be that banks have got a lot better at nipping problems in the bud. ‘Banks today have more sophisticated early warning systems for businesses in trouble,’ says Baker Tilly’s Geoff Carton-Kelly. ‘This allows more time to explore all the options - from business restructuring to debt renegotiation.’

One interesting titbit from today’s figures was that despite the credit crunch, personal insolvencies were actually 8% down on last year. However, although it’s possible that we might be getting a bit more cautious about debt, the chances are that this drop merely reflects the easier access to informal debt management schemes – which don’t count against the numbers. And as the doom-mongers keep telling us, the worst may be yet to come...


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