Administrations hit lowest level since 2005

by Richard Crump

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30 Jul 2014

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THE NUMBER of companies entering administration has fallen to the lowest level since the first quarter of 2005, government statistics show.

According to the latest figures from the Insolvency Service, fewer companies entered into administrations, company voluntary arrangements and receiverships in the second quarter of 2014 than over the same period the previous year, underlining the difficult environment for insolvency practitioners specialising in corporate work.

There were 410 administrations between April and June, a decrease of 19.2% compared with the previous quarter and 34.9% lower than the same quarter in 2013, as well as a decrease from the peak of nearly 1,700 in 2008. Additionally, the liquidation rate in the 12 months to the second quarter of 2014 was at its lowest level since data has been available to calculate the rate.

The decline in overall corporate administrations is an indication of the low interest rate environment and that banks are propping up zombie companies in the hope that they can achieve a higher return through keeping the company going.

"Insolvency practitioners that are still waiting for an avalanche of zombie companies to tip over into insolvency are searching for scotch mist," said Melissa Jackson, director of corporate recover and insolvency at CBW.

Clive Lewis, head of enterprise at ICAEW, expects an increase in insolvencies when interest rates increase, but others in the profession believe a rise in rates could have limited impact.

"An interest rate rise could cause some businesses extra problems, but it would have to be more than a couple of quarters of a percentage point to make any real difference," said Phillip Sykes, head of restructuring and insolvency at Moore Stephens and vice president of industry trade body R3.

At the same time there has been a spike in the number of individuals becoming insolvent, representing the biggest increase in more than four years. Between April and June, 27,029 people in England and Wales became insolvent, while the rate of personal insolvency increased for the first time since 2010, reflecting the growing use of individual voluntary arrangements.

"IVAs have become much easier to access recently. Our members have seen IVAs set up for as low value dents as a few thousand pounds and with surplus incomes well under £200," Sykes said.

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