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Insolvency figures 'low compared with previous recessions'

Date Added: 08/11/2011  

The number of companies failing and being served with a winding up order due to the fragile state of the UK economy is comparatively low when compared with figures after previous recessions, according to insolvency trade body R3.

President of the organisation Frances Coulson stated that this is because the value of business assets is too low for administrators to pursue.

"Consequently businesses are being allowed to stay afloat albeit as ‘zombie' enterprises," she said.

"When the economy begins to enjoy a period of sustained growth we are likely to see creditors being more aggressive in their pursuit of debtors."

Ms Coulson predicted that the economic recovery is set to remain sluggish and be dragged out for the next three to five years, while insolvency figures are up on those from a year ago.

The specialist noted how R3's Business Distress Index has found that more than four out of every ten businesses have experienced decreased profits as a result of the slow economic recovery in the UK following the recession.

She pointed out "current stresses" may not have enough to push companies over the edge, but a "prolonged period of distress" was predicted to result in a rise in the number of insolvencies.

Ms Coulson explained it is traditionally hard for businesses in the few years following the end of the recession, as they may not be able to expand as a result of a lack of reserves.

R3 recently highlighted the fact that there has been a rise in the number of companies using their maximum overdraft, which could signal that they have cashflow issues and may be in need of taking business debt advice in order to avoid the threat of a winding up order.

More than one in five of the firms to respond to the research admitted that they are currently using all of their agreed overdraft limit with their bank.

Need advice on Winding up Orders? Call 0800 9020123

Posted by Miles Pritchard  

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