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Lower failure rates hide “insolvency armageddon” 2 November 2012

A fall revealed in the number of corporate insolvencies is covering up a struggling economy failing to kick away from recession, according to one industry commentator.

That is the view of one commentator following the release of the Insolvency Service statistics earlier today (2 November).

According to the stats there were 986 other corporate insolvencies in the third quarter of 2012 (not seasonally adjusted) made up for 277 receiverships, 548 administrations and 161 company voluntary arrangements (CVAs).

In total these represented a decrease of 21% on the same period a year ago.

Frank Tschentscher, a partner with law firm Schultze & Braun, claimed “the oddest recession I’ve ever seen” was distorting figures.

He said: “The apparent decrease in corporate insolvencies appears to be a positive sign for the UK economy, but is actually a false dawn.

“If the UK were edging out of recession then insolvencies would rocket.

“Despite the administration of Comet, which is a good sign of the high-street rebalancing after decades of unsustainable growth and prosperity on the back of debt finance, the fact is nothing will alter the big picture for a number of years.

“The reality for many British businesses is that they will continue to limp along for several years yet, but as soon as there are real signs of growth in the economy we are likely to see an insolvency armageddon.”

According to Mike Jervis, partner business recovery services at PwC, a combination of low interest rates and increased support from lenders has had a positive impact on the numbers of business casualties.

His analysis of today’s corporate insolvency statistics reveal administrations are at their lowest level since Q1 2005.

It shows, between July and September, 548 companies entered administration – an 18.5% fall on the same quarter last year and 12.3% drop on Q2 2012.

However, Jervis signaled a note of caution for the future, he said: “There is clearly still pressure and distress out there and there are still some casualties.

“Liquidations have not fallen as much as other types of insolvency, which is indicative of the pressures on smaller businesses facing difficult trading environments and who do not have the access to rescue options that larger companies have.”

 

 

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