Insolvency Service reports massive spike in company failures

British businesses are starting to feel the full effects of the economic slump, Insolvency Service figures have shown.

There were 4,001 compulsory liquidations and creditors’ voluntary liquidations in total in England and Wales in the third quarter of 2008, more than 26% up on the same period a year ago.

This was made up of 1,483 compulsory liquidations and 2,518 creditors voluntary liquidations.

Catherine Matthews, partner at licensed insolvency practitioners, Tomlinson's said: 'The company insolvency figures for the third quarter of 2008 paint a grim picture.

They underline just how tough things are for the moment for companies, and that the recession is really starting to bite. A 26% rise on the same period last year, and a steady increase quarter- on-quarter, simply can’t be ignored. These are desperate times for many businesses.'

Insolvency practicioners have been bracing for a spike in company collapses and the Insolvency Service figures suggest that this is coming to fruition.

'The important thing for businesses is to recognise the warning signs that they may be beginning to struggle at an early stage,' Matthews added. 'If they can do this, the more options there will be for dealing with the situation and achieving a positive outcome.

'In times like this, it’s more important than ever that company directors keep a close eye on their financial performance and accounts so they can quickly deal with any problems that may arise and, if necessary, seek the appropriate advice.

There were 1,444 other corporate insolvencies in the third quarter of 2008 comprising 270 receiverships, 1,007 administrations and 167 company voluntary arrangements. In total these represented an increase of 64.7% on the same period a year ago.

PricewaterhouseCoopers said that companies should plan ahead before conditions become too tricky:

'There has been a marked increase in the numbers of insolvencies in the third quarter of 2008, showing that the lack of confidence and capital is now impacting a much broader range of the economy than we have experienced to date.

'Despite grabbing the headlines on an almost daily basis over the last quarter, insolvency is not necessarily viewed as a death sentence anymore and businesses are seeing that insolvency techniques can be used as a mechanism to salvage and revitalise ailing operations. Used in the right circumstances, insolvency procedures including pre-packaged administrations can help to rescue a company, saving jobs, and preserving value for the company and continuity for suppliers.

'Where rescue capital is a scarce commodity, it is obvious that the sooner problems are recognised, a solution, inside or outside an insolvency process, is more likely to be achievable. In this environment, downside scenario planning should always be on the boardroom agenda.'

Further reading:

Insolvency rate to rise by catastrophic amount