Insolvency figures in shock fall

Figures show in the third quarter of 2001, overall company insolvencies have fallen instead of increased, as City analysts expected, both in comparison to last quarter?s figures and this year’s.

The figures showed a drop in compulsory liquidations, used mostly for small companies.

Liquidations, according to the DTI, were the lowest since 1989.

A spokesman from R3, the association of business recovery professionals, said the marked downturn is because small businesses are becoming more prudent. ‘The overall decrease and move away from compulsory liquidations to creditors voluntary liquidations (up 9%), suggests the small businessman is becoming more astute,’ he said.

He added that the small businessman ‘is paying attention to the warnings of downturn and seeking expert advice earlier – a course of action R3 has advocated for some time.’

But the figures also showed an increase in administration and administrative receivership, which are predominantly used by larger companies. Administration grew 44.5% on last year, while receivership increased only 3.9%.

According to R3 this could be an indication that lenders are already listening to the message in the Enterprise Bill, and moving into administration instead of receivership.

But R3’s findings continue to show that businesses are still failing because of bad management.

David Buchler, vice president of R3, said that problems for management were sometimes outside their control due to the economy. ‘In the main however it is usually the lack of financial care of management that is at the root of corporate problems,’ he said.

Because of this, R3 has a constant call for directors of failing companies to receive additional instruction in running a business. R3 said it is clear from past findings that ‘many directors would benefit from formal training’.

A recent paper from R3 said: ‘Our most recent business recovery survey demonstrated that nearly one in two insolvent companies fail because of poor management decisions.’

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Insolvency figures ‘skewed’