Insolvency stats are the tip of the iceberg, warns Jervis

One of PricewaterhouseCoopers’ most high-profile insolvency practitioners, Mike Jervis, has said the record numbers of company collapses is distracting attention from the businesses embroiled in last-ditch restructuring moves to survive.

Much has been made of the spike in business failures, but Jervis said the wave of companies teetering on the brink of collapse was just as pressing an issue.

‘The actual insolvency statistics show only part of the picture. There are many restructurings either not involving insolvency or using light-touch insolvency techniques to salvage viable businesses.’

Jervis said the companies would need to think carefully about their options in good time, while keeping a close eye on their financial position.

‘Those businesses most likely to survive recession will turn to management teams and advisers experienced in turnarounds. They will plan for different scenarios and will be obsessive over their cashflow management.’

The latest PwC analysis into corporate insolvency numbers show the downturn is showing no signs of abating, with 5,483 companies becoming insolvent in Q1 2009. This represents a 14% increase on the previous quarter and a 57% increase of the same quarter of 2008.

The worst affected sectors are construction (829 companies), manufacturing (734), retail (705), hospitality and leisure (312) and real estate (235) – all of which are showing a five-year high, the firm said.

Companies are further under the cosh as the lack of insurance guarding against the threat of company collapses is removed.

This week Bay Trading, a division of clothes retailer Alexon was forced into administration after credit insurance was denied to its suppliers. In its prelims Alexon’s auditor said it would be including an emphasis of matter paragraph in its audit report. This set off a chain reaction of events, starting with trade credit being pulled from its suppliers and ending with the division’s collapse.

‘UK businesses are still suffering from the effects of the global recession as more enter into insolvency with no apparent signs of a slowdown in the near future,’ added Jervis.

‘At PwC we are currently working with businesses across the UK, in many sectors and of varying sizes. Many companies are leaving it too late to ask for help.’