East Anglia: Regional head of insolvency organisation R3 welcomes surprise fall in business failures

The number of businesses failing across England and Wales is falling, according to new Insolvency Service figures.

The latest data prompted some surprise among experts who said that business insolvencies often tend to see an uplift during the first signs of an economic recovery.

But only 3,875 companies were liquidated in the third quarter of this year, marking a fall of nearly 3% on the previous quarter and a 2% drop on the same period a year ago.

Meanwhile, there were 949 other types of corporate insolvency recorded in the third quarter where companies were able to carry on running, showing a 3% fall on the previous quarter and a 4% drop on the same period last year.

This total was made up of receiverships, which were down 9% year-on-year, administrations, which edged down by 0.7% on a year ago and company voluntary arrangements, which fell by 6% on the same period in 2012.

Experts said the figures suggest that some struggling firms are still relying on the goodwill of those they owe money to as well as their employees. Continued low interest rates are also keeping borrowing costs down.

Shay Lettice, eastern region chairman of R3, the national body for insolvency professionals, and a partner at Peters Elworthy & Moore, said: “The decrease in corporate insolvencies is somewhat unexpected as economic recovery usually heralds an increase.

“However, there has been a significant downward trend in insolvencies since the recession in 2008-9, while anecdotal evidence from the profession suggests this is still a quiet time for new appointments.

“Although R3 has heard reports of creditor pressure increasing, businesses may also be receiving a helping hand from their workforce. Employees making sacrifices to keep their employer afloat was not uncommon during the depths of the recession and, as the recent Grangemouth scenario shows, this phenomenon may still be going on.

“It may take some time for the recent economic recovery to have an impact on insolvency figures: growth in East Anglia over the past year has been solid rather than spectacular. Meanwhile interest rates remain low, which will continue to give struggling businesses a helping hand.”

Graham Bushby, Baker Tilly’s head of restructuring and recovery, said: “There has been a remarkable willingness on the part of employees to support their employer through the tough times, either by accepting wage freezes or new terms and conditions, switching to part-time work or taking on zero hours contracts.

“Quite how long this goodwill will last is a moot point, given that pay is struggling to keep pace with inflation and disposable incomes are being squeezed by above inflation rises in many essentials.”

Mr Bushby said that the construction industry, which had been suffering particularly badly, is now showing some signs of recovering.

He added: “For the time being, provided that interest rates stay at a low level, many businesses will continue to struggle on, hoping they can take advantage of the economic upturn.”