BusinessBusiness RecoveryInsolvency Service reports massive spike in company failures

Insolvency Service reports massive spike in company failures

Insolvencies go through the roof as the credit crunch hits the bedrock of British business

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

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