Collapses still high but levelling out, says Deloitte

Deloitte has said there appears to be a slow down in the number of corporate
collapses, despite the number of businesses going bust remaining at levels not
seen since the last recession.

The number of collapses in the first half of 2009 were up just 2% compared to
the last half of 2008, Deloitte found.

Corporate collapses fell 21% in April – June 2009, compared with the first
quarter of the year, the firm added.

However, an 18% increase in the number of companies going bust in the first
half of 2009, compared to the same period in 2008 reflects the tough economic
conditions businesses are still facing.

Lee Manning, reorganisation services partner at Deloitte, said: ‘Whilst the
total level of administrations remains high, there appear to be signs that the
level of administrations may have reached a plateau.

‘This is certainly evidenced in both the property and recruitment sectors:
whilst year on year the number of administrations have increased by 19% and 26%
respectively, the failure rate compared to the last six months of 2008 has
fallen, both down 6% and 5% respectively – indicating that perhaps these sectors
have seen the worst of the downturn.’

Deloitte has seen businesses taking ‘aggresive’ action to firm up balance
sheets and companies engaging in different forms of restructuring activity, with
debt for equity swaps becoming increasingly popular in the mid-market.

‘The trend towards using a CVA as a restructuring tool is also on the
increase,’ added Manning.

‘This is not to say our problems are over. We are moving to the point where
total casualties year on year are so high that a modest positive swing masks the
reality of the underlying problem.

‘Market conditions remain desperately tough and high numbers of corporate
failures are likely to continue for some time until liquidity returns to the
economy. ‘

The retail sector has seen an increase of 30% in the number of
administrations, compared to the first half of 2008, but levels have remained
static recently. There were 167 retail administrations in the first six months
of 2009 compared with 168 in the last half of 2008, Deloitte found.

‘As consumer confidence waned, retailers were the first to feel the pressure
with reduced spending and a
reduction,
or in some cases the withdrawal, of credit insurance,’ Manning said.

‘Since then many retailers have taken rapid and effective action to
strengthen their finances. The sector is by no means out of the woods, and the
scale of challenges facing retailers will continue to put pressure on the sector
as the year progresses. However, we expect to see an increase in the use of CVAs
to help resolve financing challenges for retailers.’