Insolvencies skyrocket again

Insolvency Service figures have shown that UK businesses are being battered to an extent not seen since the recession of the early 1990's.

There were 4,941 liquidations across England and Wales in the first quarter of 2009 on a seasonally adjusted basis.

This was an an increase of 56.0% on the same period a year ago.

1,579 compulsory liquidations took place up, 43.6% on Q1 2009. 3,362 creditor groups had voluntary liquidation petitions granted, 62.5% higher than Q1 2009 and 10% up on Q4 2008.

On a seasonally adjusted basis, the numbers of corporate insolvencies (receiverships, administrations and company voluntary arrangements) in the first quarter of 2009 has risen by 43.6% over the same period last year, the Insolvency Service said.

29,774 people went through bankruptcy procedures in England and Wales in the first three months of the year on a seasonally adjusted basis. This was an increase of 1.6% on the previous quarter and an increase of 19.0% on the same period a year ago.

This was made up of 19,062 bankruptcies and 23.4% on the corresponding quarter of the previous year), and 10,713 Individual Voluntary Arrangements (IVAs), (which were up 3.6% on the previous quarter and 11.8% on the corresponding quarter of the previous year).

Stephen Speed, Chief Executive of the department said:

'Insolvency procedures exist to provide debt relief for insolvent companies and individuals enabling them to make a fresh start and regularise their financial position. However insolvency procedures do have serious consequences and can have far-reaching implications for directors and individuals.

'It is important that the public can have confidence that corporate insolvency procedures are not open to abuse. Where company directors are found to have been guilty of misconduct they can be disqualified from acting as a director in the future. Currently, some seven directors a day are disqualified as a result of investigations conducted by the Insolvency Service. In the last quarter, 59 directors were disqualified for 10 years or more - a very serious sanction.'

In the wake of major business collapses including Land of Leather, Woolworths and Waterford Wedgwood the government announced in Budget 2009 that the Insolvency Service would consult in June on measures aimed at further improving the ability of companies to seek rescue through administration and CVAs.

But industry experts have warned that comapnies had not seen the worst of the financial storm.

Richard Fleming, UK Head of Restructuring at KPMG, said:

'Unfortunately we are seeing companies with nowhere else to go failing as their backers, realising that they are throwing good money after bad, snap the purse closed.

'The financial sticking plasters which were applied to struggling companies when liquidity was still available are now coming away and lenders are unwilling to reapply them.

'We expect to see the rate of insolvencies gathering pace over the coming months as the Darwinian theory takes effect in the corporate world. Interestingly the CVA figures are down by 12% this quarter but this could change with the approval of the JJB CVA. We may now see more compromise deals being struck between companies and their creditors to avoid insolvency.'

Graham Rusling, Managing Director for Business Support and Recoveries, at Barclays commercial divsion said:

'We expect administration numbers will continue to remain high even after it is confirmed that the UK is in recovery, as these numbers have tended to lag behind almost every other economic indicator.

'However, it is important to remember that the majority of businesses working through an administration will still continue trading in some form at least, with the goal of retaining staff and protecting shareholder value.

'It is crucial that those companies that sense major challenges ahead communicate this to business partners including their bank as early as po ssible, which will offer the greatest flexibility in how these challenges are met, in many cases avoiding administration altogether.'

Alan Tomlinson of UK licensed insolvency practitioners, Tomlinsons, which specialises in the smaller companies which form the bedrock of the UK economy said:

'Today's statistics firmly squash the notion that there are any green shoots of recovery out there. The number of company failures is significantly up on last year and each one contributes to the overall domino effect. At the same time, many directors are unable to start again due to difficulties obtaining new finance and so for many of these businesses, the situation is terminal.

'Since last autumn many of the companies we are seeing have suffered significant drops in turnover that they have been unable to replace. Without the reserves needed to ride out their current difficulties, these companies are going under with all the ramifications for the economy that this entails, such as increased unemployment. I simply cannot foresee there being a slowdown in the rate of company insolvencies until the middle of next year.'

Further reading:

Insolvency stats are the tip of the iceberg, warns PwC's Jervis