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Drop in corporate insolvencies 'a welcome sign'

Date Added: 06/02/2013  

A drop in the number of firms being declared insolvent has been welcomed by R3.

The insolvency trade body stated it is a good sign that the total number of company liquidations in 2012 has fallen four per cent from 2011, while administrations have been shown to be down by 12 per cent.

President of the group Lee Manning stated there are now 160,000 zombie businesses in the UK, which are companies that are only able to pay the interest on their debt, but not the debt itself.

"Zombie businesses have remained in distress for some time, they are unable to invest or expand, but are nonetheless being kept alive by lenient creditors and low interest rates," he said, adding: "Whilst low insolvency rates are good for employment, this stagnation does tie up capital that could be used for other, healthier businesses."

Mr Manning suggested now could be the right time to carry out an "honest and realistic assessment" of when the resuscitation of zombies becomes impossible and take action accordingly in order to secure long-term growth of the UK economy.

However, winding down zombie firms is likely to result in many jobs being lost and this could have a negative impact on the UK economy, which shrank during the last three months of 2012.

Mr Manning also highlighted the fact that corporate insolvency rates remain "historically low", especially when they are contrasted with previous recessions.

Data recently showed there has been a dramatic decline in the number of winding up orders being served by HM Revenue and Customs. There was only one in October, 18 in September and 515 over the first six months of 2012, which shows HMRC is taking action against much fewer companies.

An insolvency practitioner told the Scotsman that a lack of money means HMRC will not be paying for insolvency services until the start of April.

Need advice on Winding up Orders? Call 0800 9020123

Posted by Julie Cutts

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