A report from Graydon UK claims the number of corporate insolvencies is expected to fall by 12.7 per cent compared to the first quarter of 2010, but will be up 8.2 per cent on the number of company failures recorded in the first quarter of 2008, when the effects of the economic downturn had not yet been realized.
The Graydon Insolvency Predictor also states that the impact of January’s VAT increase and speculation about the Bank of England raising interest rates will mean that non-essential retailers are likely to be most at risk, as consumer confidence and spending power both decline.
Martin Williams, head of external communications at Graydon UK, said: “The residual impact of the financial crisis is still being felt keenly, with the number of company failures still considerably higher than they were in 2008, prior to the onset of the downturn.
“We are now beginning to see green shoots, with both Bovis Homes and Persimmon reporting an increase in profits and sales activity in recent weeks to indicate a recovery in the construction sector, a traditional pointer of better prospects for the economy at large.
“The government spending cuts have not yet begun to bite however.”
According to the index, compulsory liquidations in the first quarter of 2011 will continue the downward trend seen in 2010, indicating that creditors are looking for alternative ways to recover their debts, through creditor voluntary arrangements (CVAs) or rescheduling repayments.
Williams added: “When it comes to the threat of insolvency action, struggling businesses appear to be benefitting in two distinctly different ways.
“On the one hand, they are being offered some respite from the threat of compulsory liquidation as creditors consider other options for recouping money owed to them, while HMRC’s Time to Pay scheme continues to provide breathing space to company directors hoping to avoid entering into creditors voluntary liquidation."
He added: "The combination of these two factors is continuing to drive insolvency numbers down.”