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Insolvencies down, official figures show

Date Added: 06/08/2012  

The release of official figures has shown that the number of companies in the UK that are becoming insolvent is falling.

Data from the Insolvency Service showed there were 4,115 compulsory liquidations and creditors' voluntary liquidations in total in England and Wales in the second quarter of 2012, which is a 3.6 per cent drop on the previous three-month period.

The statistics were seasonally-adjusted and were shown to be 2.4 per cent down on the figures from the equivalent period last year.

According to the data, there were 1,040 compulsory liquidations between April and June this year, which is down 13.9 per cent on the previous quarter and a 18.7 decrease on the corresponding quarter of the previous year.

Meanwhile, it was found by the Insolvency Service that there were 3,075 creditors' voluntary liquidations over the course of the three months, which is up 0.4 per cent on the previous quarter and up 4.6 per cent on the same period in 2011.

It was also added by the body that there were 1,310 other corporate insolvencies in the second quarter of 2012 - with these figures not seasonally adjusted - comprising 333 receiverships, 625 administrations and 352 company voluntary arrangements (CVAs), which all in all represented an increase of 6.3 per cent on the corresponding time from 12 months ago.

Commenting on the release of the figures, president of insolvency trade body R3 Lee Manning explained it is a tough time for those firms operating in the retail sector in the UK, with many organisations struggling and in need of taking business debt advice.

Many are facing the threat of a winding up order and thousands of jobs could be lost up and down the UK unless there is an improvement in the state of the economy - which is currently in a recession - that can boost the spending power of consumers and help high street companies.

"While retail is facing its own particular set of challenges, the big picture is that corporate insolvency overall is down three per cent on the previous quarter and one per cent year on year," pointed out Mr Manning, who added: "At least things are not getting worse, even if this feels counter-intuitive with the UK economy firmly back into a double-dip recession and other threats from the eurozone."

The R3 president noted that a 41 per cent hike in the number of firms taking CVAs over the course of the last three months is an "intriguing" figure that he says demonstrated the "rescue culture" that is evident in the UK at the present moment in time.

He suggested this could be due to the fact that creditors are working harder to keep companies afloat than ever before, as they would likely see some return from the money they are owed than none at all if the business was to go under.

Mr Manning pointed to the recent research from insolvency trade body R3 in the latest Business Distress Index, which recorded that nearly one in ten - eight per cent - of firms are 'zombie businesses', which is a term used for those that are only able only to service the interest on their debt but not reduce the debt itself.

"When growth finally kicks in, many of these zombie businesses may well face being shut down, as they have little value in them," he noted, adding: "While the drop in corporate insolvencies is to be welcomed, we could yet see a clear out of insolvent businesses, even in this atypical recession."

The government recently announced it is set to tackle the issue of late payments, which is one that causes financial difficulties for small organisations all over the country.

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Posted by Michael Beam

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