Dotcom crash fuels insolvency

The dotcom crash has had a bigger impact on insolvency than the effects of terrorist activity and is still being felt by major companies, causing many high-profile failures in the second quarter, insolvency experts say.

Last month, the DTI reported a 10% year-on-year rise in businesses going bust in England and Wales in the second quarter of 2001. Ending in June, the second quarter saw more than 4,100 businesses become insolvent, including ITV Digital.

According to insolvency experts, the effects of the dotcom boom and bust are still being felt.

Grant Thornton’s Corporate Recovery partner Malcolm Shierson said: ‘Most of the insolvencies we are currently seeing tend to be in the telecoms and technology sectors, which during the dotcom boom, pushed the boat way out. ‘The capital expenditure witnessed in those days was phenomenal and, with relatively modest returns compared to the investment levels.’

Shierson also said the US insolvencies affected UK businesses and institutions.

He added: ‘UK financial institutions are counting their losses as venture capitalists, bond holders and banks have been badly hit after fuelling much of the capital expenditure that supported these companies.’

Many companies claimed their businesses went into insolvency proceedings because of the effects of the September 11 attacks.

However, some experts say the crisis ensuing from the terrorist attacks did not have as much of an impact as some claim.

The effects were more industry-specific according to Nick Wood of Grant Thornton, who added that the travel sector and its suppliers were particularly badly hit.

Philip Davidson, UK head of restructuring at KPMG, said that many companies were facing difficulties pre-September 11.

He said: ‘My experience has been that September 11 has not contributed to business failure. It has not been a factor in the hard-hit telecoms sector or the power industry.

‘Overall, businesses that were properly managed and were flexible, were able to react.’