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Corporate liquidations up in Q2 despite quieter insolvency climate 2 August 2013

Despite falling rates of overall corporate insolvency, the number of corporate liquidations in England and Wales increased 10.5% during the second quarter of 2013 compared to the previous quarter.

The Insolvency Service (IS) revealed the total was made up of 961 compulsory liquidations, down 6.6% on the previous quarter, and 3,017 creditors’ voluntary liquidations, up 17.3% on the first quarter of 2013.

There were 974 other corporate insolvencies during the second quarter of 2013, comprising 192 receiverships, 622 administrations and 160 company voluntary arrangements.

The top line figures represent a 25.6% decrease in corporate insolvencies on the same period in 2012, although this was influenced by the high number of CVA’s during the second quarter of 2012 (352).

Richard Hodgson, insolvency partner at Linklaters, said: “Few expected today’s figures to show a significant uplift in insolvencies.

“Low interest rates and favourable credit conditions mean that businesses are able to survive, although many are just treading water unable to grow or invest.

“It remains to be seen whether the insolvency lag of previous recessions – where insolvency levels increase as the economy recovers – will be repeated this time around seeing many of those zombie firms go under.”

Dan Butters, restructuring partner at Deloitte, said: “A key challenge to businesses is being able to fund expansion as any recovery gathers momentum.

“This could be an insurmountable challenge for the most extreme cases of ‘zombie businesses’, those unable to invest or expand, and which have so far avoided formal insolvency procedures.

“However, today’s figures also coincide with reports from CFOs surveyed by Deloitte that credit is currently cheaper and more available than at any time in the past six years – good news for businesses that can expand.”

Meanwhile, individual insolvencies in England and Wales during the period totalled 25,717, up 2.8% on the first quarter of 2013 but down 6.1% on the same period last year.

The figure was made up of 6,469 bankruptcies, 7,132 Debt Relief Orders (DROs) and 12,116 Individual Voluntary Arrangements (IVAs).

The number of DROs issued were higher than total bankruptcies for the fourth quarter running, while bankruptcy orders have been lower than IVAs for the last nine quarters.

Matthew Chadwick, head of personal insolvency at BDO, said: “The small 2.8% increase on the previous quarter’s total personal insolvencies attests to the continuing resilience of individuals and families, coping with debt and rising living costs with minimal increases in real income.

“But there may be some squalls ahead before it is all plain sailing. Alternative debt providers, such as payday lenders, have surged in popularity but any restriction in that short term funding or the ability to roll over loans as the economy bounces back may also place people in difficulty.

“The silver lining is that Government and the Bank of England will be reluctant to make drastic changes, so any increases in personal insolvency levels linked to interest rate rises are likely to be gradual.”

By John Brazier

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