Soaring insolvencies strike UK businesses (Credit Today)
01-08-2008
The number of receiverships, administrations and company voluntary arrangements (CVAs) rocketed in the second quarter, according to official Insolvency Service statistics published today.
In total there were 177 receiverships, 938 administrations and 131 CVAs – a massive 63.1 per cent higher than the same period last year.
The number of company liquidations rose by 15 per cent with 3,560 compulsory liquidations and voluntary liquidations in England and Wales in the second quarter. The number of businesses voluntarily liquidating rose by 27 per cent on 2007. In Scotland, however, company liquidations fell 20 per cent.
Nick Wood, recovery and reorganisation partner with Grant Thornton, said the fact that the restructuring and insolvency departments of banks and major accountancy firms were gearing up for a significant flow of work in the autumn was a clear indication of the scale of business difficulties.
"The negative sentiment expressed in a huge range of economic indicators is now feeding through to the real economy, with businesses that a year ago had been able to paper over the cracks now being fully exposed. Unfortunately, this feels like just the beginning."
He added: "House building is almost dead in the water at present, with jobs within the industry disappearing by the day. We have seen examples of property companies preferring to lose their deposit rather than complete on land purchases. As a gauge for the wider economy, this is not good news."
Those sectors directly affected by discretionary consumer spending, including retail and leisure businesses such as pubs and restaurants are also set for a very turbulent time in the next 18 months, said Wood, though he added that no sectors were immune.
Meanwhile, individual insolvencies in England and Wales decreased slightly, down 8.3 per cent on last year. The exception was Scotland, where bankruptcies (sequestrations) rose 78.3 per cent as a result of the inclusion of 1,709 LILA (low income low asset) bankruptcies, which were introduced in April.
Experts said lower personal insolvency figures are misleading as they do not reflect growing levels of consumer distress.
Bev Budsworth, managing director of The Debt Advisor and Credit Today’s 2008 ‘Debt Counsellor of the Year’ said: "It was to be expected that the levels of IVAs would reduce. Some insolvency practitioners are still not using the new IVA protocol and are therefore finding that more and more IVAs are being rejected by creditors’ strict criteria. Secondly, although we have experienced the so-called ‘credit crunch’ for a year now, I believe that we are still in the ‘calm before the storm’ in terms of its effects."
She added: "One prevalent area not covered in these statistics is the level of more informal debt management plans which can be offered by providers who are not qualified IPs. I suspect that the levels of debt management plans would have shown a significant increase this quarter."
TOP