Member Article

Corporate insolvency reaches five year low

Business insolvencies in England and Wales decreased in the last three months by 21%, as 986 companies went bust.

Figures from the Insolvency Service showed the number of companies going out of business had reached its lowest level in five years.

The total number of compulsory liquidations rose by 5.5% to 1,092 from the second quarter of 2012, however this figure is 10.2% lower than the same period last year.

Voluntary liquidations also fell from the previous quarter by 5.6%, and by 5.1% like-for-like.

In contrast, personal insolvencies increased for the first time in a year, with a 2.5% increase in the last three months to 28,062 individuals.

Commenting on the figures, Nicola Connop from debt advisors, Business Debtline said: “It is clear to us that the difficulties faced by small businesses extend far beyond the insolvency figures announced today.

“Many of these businesses have been hit by the tough economic climate, with lots … pointing to trade shortfalls, late payers and supplier issues as the reason for their difficulties.”

Sean Hamilton, partner in the business recovery team in Newcastle, commented: “There are fewer insolvencies this quarter as a result of low interest rates and supportive lenders and stakeholders and this is a welcome back-drop for our recovery out of recession. However, there is clearly still pressure and distress out there and there are still some casualties. Those businesses we see which make up these statistics are those who are running out of cash because of trading losses or those suffering a reputational or product issue problem.

“Liquidations have not fallen as much as other types of insolvency, which is indicative of the pressures on smaller businesses facing difficult trading environments and who do not have the access to rescue options that larger companies have. It will be interesting to see whether the new ‘Funding for Lending’ scheme has any impact on these figures.

“We expect these lower levels of insolvencies to continue into the new year, however, what happens after that depends crucially on the confidence of the consumer and the approach taken by the so-called ‘zombie’ companies to rectify their balance sheets.”

Managing Director of financial advisors NE Money, David Wilson said: “Company insolvencies being at a five year low could be seen as encouraging news but as ever doesn’t reflect the position that a lot of companies find themselves.

“Whilst businesses reaching the end of the road in the third quarter is down 25% on the previous period it’s news which many firms won’t find hugely exciting.

“The recent improvement in the economy, continued banking support (support meaning not taking any drastic/adverse actions) and the general resilience of businesses is the true picture of these statistics.

“The issue now is how prepared companies will be going into the final period of 2012 (whether that represents a good or bad trading period) and what will happen for many businesses come the start of 2013, for example when quarterly rents are due?”

This was posted in Bdaily's Members' News section by Miranda Dobson .