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Company insolvencies up and experts predict more to come 3 February 2012

Company insolvencies were up 7.4% during Q4 last year in England and Wales compared to the same period in 2010.

Overall there were 4,260 compulsory and creditors’ voluntary liquidations (CVLs) – a 0.4% increase on Q3 – according to today’s statistics released by the Insolvency Service.

Compulsory liquidations (1,389) recorded the biggest jump – up 14.1% on Q3 and 16.1% on the same period the year before.

However, the number of CVLs recorded a 5.1% drop on Q3, yet this was still 3.4% up on the same period in 2010.

‘Other’ corporate insolvencies – comprising of receiverships (324), administrations (658) and company voluntary arrangements (CVAs) (191) registered a 5.3% increase on 2010’s levels.

In total, in the 12 months ending Q4 2011, about one in 138 active companies were liquidated.

However, the liquidation rate (approximately 0.075%) still compared favourably to the peak of 2.6% in 1993 and the 25-year average of 1.2%.

But Ian Gould, head of Corporate Recovery and Insolvency at PKF (UK) LLP, warned: “The most important message coming from today’s figures is that the surge in corporate insolvencies hasn’t hit yet.

“Although the number of compulsory liquidations and creditors’ voluntary liquidations is the highest since the final quarter of 2009, it’s still modest in historical terms and does not accurately reflect the pain being felt by the corporate sector at the moment.

“Looking behind the numbers, we’re seeing businesses stagnating or in slow terminal decline that are just about able to hang on thanks to low interest rates and forbearing bank managers reticent to pull the plug.”

Gould’s foreboding sentiment was shared by Frances Coulson, R3 president, who also predicted a rise in the failure of so-called ‘zombie’ businesses.

She said: “The increase in corporate insolvencies is unsurprising given the challenging economic environment that businesses are operating in.

“We have known for a while that many businesses are surviving but not thriving, operating as ‘zombies’ and eventually some would have to fail.

“This is certainly the calm before the storm and in fact if the economy is to recover, we must see some businesses fail, to allow viable ones to thrive.”

And Tony Bugg, global head of Linklaters’ Restructuring and Insolvency Group, added: “When compared to the first three quarters of 2011, the last quarter saw a dramatic fall in the volume of leveraged refinancings and today’s insolvency statistics may provide evidence of a reduced appetite of creditors to continue supporting distressed corporates.”



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