Company insolvencies continue to rise

Firms in England and Wales are dissolving faster than an Alka-Seltzer in water, according to second-quarter data from the Insolvency Service.

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013
Company insolvencies are up 6% on 2011, with 1,310 firms going into receivership, administration or a company voluntary arrangement. It’s a 1.5% increase on Q1, and bad news for the UK economy.

However, there are a few factors at work skewing the figures: the collapse of the Southern Cross care group added 156 companies to the insolvency tally, 104 which appear on the books for the second quarter.

Without these, the numbers looks altogether rosier, with just 1,206 bsuiness failures in total, a drop of 7% from the first quarter and a 2% down on a year ago.

However, Brian Johnson, insolvency partner at accountants HW Fisher warns that taking a glass-half-full view of the data could be dangerous. ‘Rarely have the numbers been flattered to deceive more,’ he says. ‘They simply aren't showing the pressure which has built up in the system, as thousands of companies bump along the bottom, kept alive only by low interest rates, and frequently by their owners pumping personal savings into them.

‘[They] can only defy business gravity for so long,’ he adds.

According to the Insolvency Service, over the past twelve months, approximately one in 142 active companies went into liquidation. So what’s driving these firms out of business? Christopher Shaw, CEO of alternative finance provider, Platform Black, cites ‘weak business confidence, consumer demand, the never ending euro crisis and the consequent lack of finance for SMEs,’ as the chief drivers.

‘Banks in many instances won't offer overdraft facilities, are reducing them or even withdrawing them altogether,’ he explains. ‘This is putting an unbearable strain on the UK's SMEs, even those that are perfectly viable — and sending them to the wall.’

The onus is now on the Funding for Lending scheme to get UK lending out of its current funk and inject some life back into the economy.  It’s too late for the 1,310 businesses that have gone bust in the past three months but maybe, just maybe, the new cash lifeline could prove the salvation for thousands more…

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