5,000 UK companies go bust in three months

As Chrysler enters Chapter 11, insolvency figures show that thousands of UK firms also hit the wall in Q1....

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Last Updated: 31 Aug 2010

It’s been a big week for insolvency news across the pond – iconic US car giant Chrysler has finally submitted to the inevitable and gone into Chapter 11 bankruptcy protection. But things appear to be no brighter on these shores: according to the Insolvency Service, company liquidations hit 4,941 in the first quarter of the year – up 56% on the same period in 2008. And unlike Chrysler, these beleaguered businesses won’t have the consolation of an $8bn Presidential bail-out.

Indeed, the picture painted today by the UK insolvency figures is not a happy one. You can probably guess the worst-hit sectors: construction took a hefty whack from the wrecking ball, with 50% more companies demolished than this time last year; manufacturing suffered a 23% rise in failures, and liquidations in the hotel sector soared 550% (11 went down in this period this year, compared with two in the previous three months).

In news that is clearly connected, personal insolvencies have hit record levels, rising to 29,774 in the first quarter - that's up 19% on the same period last year and 1.6% up on the previous quarter. All of which may come as no surprise given the largely arid economic landscape.

Yet those intent on spotting green shoots of recovery may well dig up some reason for cheer: at least other corporate insolvencies, i.e. receiverships and administrations, were actually 27% down on the previous quarter, at 1,783. And with the proportion of active companies going into liquidation sitting at 1 in 130 (i.e. less than 1%), you could argue that things aren’t as bad as they might be, given the scale of the crisis.

Unfortunately - unless you happen to be an insolvency practitioner - there’s likely to be more bad news to come. As weakened businesses continue to wrestle with mounting debt and falling demand, and cash gets harder to come by, we can probably expect more of the same. And if past recessions have shown anything, it’s that things are likely to get worse before they get better: back in the 1990s, the number of companies going bust continued to increase for three years after the worst of the recession was officially over.

But the positive news from this week is that the money men are getting increasingly pragmatic, at least if the example of JJB is anything to go by. On Monday the struggling sportswear retailer got its landlords and creditors to agree to a restructuring of its debts, as part of a Company Voluntary Agreement - this should be enough to save JJB from collapse. Let's hope it proves to be the first of many.



In today's bulletin:

5,000 UK companies go bust in three months
MPs slam bankers again - despite rise in lending
Swine flu: don't panic, says Business Link!
If in doubt, don't have a meeting
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