Business Recovery – Insolvencies on the increase.

A senior business recovery expert has predicted that more companies will be saved from insolvency as a result of the new legislation expected to come into force this year.

Neville Kahn, a partner with PricewaterhouseCoopers, was responding to Department of Trade and Industry figures which show company insolvencies have reached their highest level since 1995.

Figures show a 6.7% increase in companies going into liquidation in England and Wales. Third-quarter figures reveal a strong weakness in the manufacturing industries, with a 34% growth in insolvencies over the second quarter and 31% up on the previous year.

The biggest increases could be seen in metals and engineering, textiles and clothing and food, drink and tobacco.

However, he said there had to more company voluntary arrangements rather than formal liquidations because they improved the chance of business survival.

He expects the new Insolvency Act passed in November last year to help small companies continue.

‘Under the old CVA there’s been no immediate moratorium on debts, but under the new procedure there will be. The reality is that many firms have been facing sustained pricing pressures with weakening demand,’ Kahn told Accountancy Age.

‘It’s the continued strength of the pound that has put the pressure on the manufacturing business, particularly those involved in the retail supply chain such as textiles.’ Although the pound fell against the euro, its prolonged strength hurt manufacturers.

Lack of consumer spending is not to blame for the increase in company insolvencies, says Kahn: ‘Consumer spending reports show there isn’t a dip in consumer spending. There’s more pressure on pricing and margins.’

According to PwC, the sizeable hike in company insolvencies show the difficulties faced by small and medium-sized enterprises exposed to intense competition. The Big Five firm says among the areas most affected are the Midlands and the North, where there the manufacturers are more traditional.

‘I think we would certainly see that cash is tighter and we would expect a higher level of insolvencies this year,’ said Kahn. He expects dotcoms and the hi-tech industry to suffer, like the wound-up clickmango ‘because of the high development cost to get to cashflow positive’.

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