September 2 2014 Latest news:
Duncan Brodie, business editor
Friday, February 7, 2014
Insolvency experts in East Anglia said today that an increase in the number of firms falling into administration does not signal that the economic recovery is running out of steam.
But they warned that the number of corporate failures could start to rise more widely, as firms which have struggled through the recession now succumb to increased competition from stronger rivals.
The number of companies collapsing into administration reached its highest level for nearly two years during the last three months of 2013, according to figures from the Insolvency Service.
A total of 642 administrations were recorded in England and Wales during the quarter, an 18% increase compared with the previous three months and the highest total since the first quarter of 2012.
However, all other forms of corporate insolvency fell during the final quater, with liquidations − which mainly involve smaller businesses − down 7.4% compared with the previous quarter at 3,552, receiverships 6.7% lower at 236 and company voluntary arrangements 19% down at 123.
On an annual basis, administrations were still 7% down compared with 2012 at 2,365, while there was an even bigger fall of 16% when receiverships and company voluntary arrangements are included. Company liquidations were also 7% down on 2012, at 14,982.
Kris Carpen, from KPMG’s advisory practice in East Anglia, said while the increase in administrations represented a warning that it was too early to “herald a full recovery just yet” they did not demonstrate that the upturn was losing momentum.
“The sharp increase in administration appointments for the last quarter of 2013 will come as a surprise to many, running counter to the increasingly numerous positive economic indicators,” he said.
However, he added: “The numbers should not necessarily set the hares running as history has taught us that many businesses, perhaps counter-intuitively, struggle to survive when economies pick up again as over-trading tips them over the edge.”
Shay Lettice of Peters Elworthy & Moore, eastern region chairman of the insolvency professional body R3, said: “The early stages of an economic recovery are often far more difficult for some businesses to negotiate than recessions themselves. Historically, corporate insolvencies increase as the economy exits recession.”
The overall fall in corporate insolvencies over the last quarter was in keeping with the general downward trend since the recession, with insolvencies now a third down from their peak at the end of 2008, but given the recent pick-up in the economy it was not clear how long this trend would last.
“Stuttering growth, low interest rates, and creditor forbearance have helped keep corporate insolvencies lower than they normally would have been since the recession,” he added. “Some businesses will have taken advantage of the extended gap between recession and growth to put their finances back in order, but this won’t be the case for all of them.
“The economic recovery and any future rise in interest rates is likely to put upward pressure on insolvencies. Indeed, recent R3 research found that 96,000 businesses would be unable to repay their debts if interest rates were to rise, while 166,000 businesses said they were having to negotiate payment terms with their creditors.”