Firms are warned of tougher times ahead

SUFFOLK and north Essex have fared better than other parts of East Anglia in the latest figures on company failures – but a clear upward trend now appears to have emerged across the region.

The number of corporate insolvencies in the Suffolk and north Essex edged up from 31 in the third quarter of 2010 to 37 during the final three months of the year, according to data compiled by regional business rescue and insolvency firm McTear Williams & Wood.

In contrast, the number of business failures elsewhere in the region grew by more than half between the two quarters – from 21 to 36 in Norfolk and from 13 to 21 in Cambridgeshire.

Suffolk also outperformed Norfolk on an annual basis, with an increase compared with the fourth quarter of 2009 of 85% against with 157%, although the Cambridge total represents a fall of 13% – largely reflecting a particularly poor performance for the county a year earlier.

However, the latest figures represent a second consecutive quarter-on-quarter increase in the region, following more than a year of benign data as the recession came to an end.

“In our last quarterly update we suggested that corporate insolvencies in East Anglia may have reached a turning point following five successive quarters of improvement, “ said Andrew McTear, partner at McTear Williams & Wood.

“The current quarter result supports that view.

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“The insolvency profession has been surprised by the low number of corporate failures over the last few quarters, given the tough economic climate, and this increase locally sets a trend which may see higher numbers of failures to come.

“Recent announcements of reduced GDP, public spending cuts, the weaking housing market and the VAT increase seen likely to translate into a further increase in corporate failures in the current quarter.”

In its latest quarterly forecast, the Bank of England warned last week that it was slightly downgrading its forecasts for economy growth during 2011 and 2012.

This follows a shock 0.5% decline in GDP during the final quarter of 2010. Although the economy is expected to bounce back into positive territory during the opening quarter of this year, with December’s freezing weather thought to have contributed significantly to the decline, the economy will come under further pressure as the Government’s fiscal squeeze takes effect.

There has also been speculation that HM Revenue & Customs might become less sympathetic than over the past two years towards companies finding difficulty in keeping up with their tax payments.

Mr McTear added that the increased threat of corporate insolvencies meant bad debts were likely to pose a greater risk to all businesses in the year ahead.

“To guard against this directors should watch out for the warning signs – late or round sum payments, new unexpected credit applications or a lack of communication from customers – and, if in doubt, put cashflow before profit,” he said.