Insolvency stats show marginal improvement

BUSINESS AND PERSONAL insolvencies fell in the third quarter of 2010 year-on-year, but advisers warn that tough times are still ahead.

Company liquidations totaled 3,974, a 13.9% fall on the previous year, and 2.2% down on Q2, according to the latest Insolvency Service statistics.

Administrations came in at 633, a 35% drop on the same period in 2010.

Individual insolvencies fell to 33,935, 3.7% down on the previous year. Within those figures bankruptcies dropped by 24%, but debt relief orders leaped 57% to 7,068. IVAs also increased 4.6% to 12,960.

“The latest statistics may have marginally improved, but our view is that the health of many companies is still flatlining,” said Andrew MacCallum, managing director at Alvarez & Marsal.

“The squeeze on financing continues, with banks imposing tightened credit standards and tougher payment terms. Getting ourselves out of this rut is going to be challenging.”

RSM Tenon expects individual insolvencies to continue at high levels for the next 18 months, as government spending cuts are felt.

Mark Sands RSm Tenon“The coalition’s spending plans, while not causing huge changes in the overall unemployment level, will nevertheless cause many people to move around the job market. These individuals may only be out of work for a few months but for those already carrying a debt burden that is more than enough time to push them over the edge into personal insolvency,” said Mark Sands (pictured), head of bankruptcy at RSM Tenon.

A combination of the increased VAT rise from January, fewer tax deferrals grants by HM Revenue & Customs, plus the ongoing bank lending squeeze would maintain the level of company failures, said Carl Jackson, head of recovery at RSM Tenon, and concurred by Grant Thornton recovery and reorganisation partner Malcolm Shierson. Only low interest rates had kept corporate insolvencies down, Jackson added.

Barclays Corporate business support MD Graham Rusling said that the bank had seen fewer customer referrals into its restructuring team than for this time of year, but numbers could rise again if the taxman failed to maintain tax payment delays for struggling businesses.

Brian Johnson, an insolvency partner at HW Fisher & Co, warned that many businesses were still operating because creditors were afraid to pull the plug and receive none of what they are owed. So-called ‘zombie businesses’ would inevitably fail.

Similarly for individual insolvencies, fewer bankruptcies have been implemented because creditors would receive little if anything in the process. The leap in debt relief orders reflected that the ‘informal’, longer term procedure provides creditors with a better chance of repayment.



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