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More businesses 'using maximum overdraft'

Date Added: 02/11/2011  

Firms close to being served with a winding up order may be near entering liquidation if they are using all of their agreed maximum overdraft with their bank.

According to R3, the trade body for insolvency professionals, there has been a rise in the number of companies at the end of their overdraft, which could indicate cashflow issues.

President of the organisation Frances Coulson stated that research has found only 21 per cent of businesses are managing to expand at the moment.

With the coalition government relying on companies to expand in order to boost the growth of the UK's economy, this could mean a recession is likely to happen in the coming months.

R3 discovered 43 per cent of firms have seen their profits go down, while more than one in five admitted to using all of their agreed overdraft amount.

Ms Coulson stated that figures released by the Office for National Statistics showing a rise in GDP of 0.5 per cent have to be viewed against a backdrop of companies reluctant to take on new members of staff.

She said: "I would worry that some businesses are not sufficiently rebuilding their reserves to support expansion, whenever that comes and these signs of distress are likely to remain despite today's increase in GDP."

Ms Coulson added an increase in the number of companies being served with a winding up order could be set to occur if a "prolonged period of distress" continues.

Blair Nimmo, head of restructuring at KPMG in Scotland, recently stated the weak state of the economy is behind figures showing insolvencies in Scotland are rising.

Speaking to the Herald, he said it is leading to significant challenges for organisations.

Mr Nimmo said: "There is clearly a lack of confidence among the consumer and the corporate and this is no surprise in the context of the number of negative signals out there."

Need advice on Winding up Orders? Call 0800 9020123

Posted by Miles Pritchard 

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