UK: Company failures at five-year low during first quarter of 2013

Shay Lettice, chairman of the eastern region of R3, the national insolvency trade body
Photo: Roger

Shay Lettice, chairman of the eastern region of R3, the national insolvency trade body Photo: Roger Adams - Credit: Roger Adams

COMPANY failures have fallen to their lowest level since early 2008 in a boost to hopes over the health of Britain’s businesses.

Company liquidations in England and Wales fell 15.8% year-on-year to 3,619 in the first three months of 2013, and were down 5.3% on the previous quarter, according the Insolvency Service.

But while the number of liquidations was the lowest since the second quarter of 2008, some insolvency experts warned there might be worse to come if the plight of “zombie” companies – those kept afloat only by record-low interest rates – worsens.

The liquidation rate of 0.7% of the 2.6million active companies in England and Wales compares with a peak of 2.6% in 1993 and an average of 1.2% over the past 25 years.

Alan Hudson, partner and head of restructuring at Ernst & Young, said the figures were “another sign that the UK economy is finally starting to move in the right direction”. Data last week showed the economy grew by 0.3% in the first quarter of the year.

Other corporate insolvencies, such as receiverships and administrations, fell 27.5% year-on-year to 935 in England and Wales.

Notable administrations during the quarter include entertainment retailer HMV, camera store chain Jessops and youth fashion chain Republic.

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Shay Lettice Peters Elworthy & Moore, eastern regional chairman of insolvency trade body R3, said: “Today’s drop in corporate insolvency could be a signal that pressure on businesses may be starting to ease.

“This is supported by current R3 research which records fewer distress signs from East of England business owners over the last quarter.

“R3’s research also indicates that the number of regional businesses reporting distress has declined significantly this quarter. However, growth remains hesitant and businesses are still facing significant issues. While things may not be getting worse, there are still challenges to overcome.”

Liquidations in Scotland plunged 70% to 113 year-on-year, and were down 50.5% in Northern Ireland to 55.

Graham Bushby, restructuring and recovery partner at Baker Tilly, said: “While on the face of it, a continued decline in formal corporate insolvency is good news for the UK economy, zombie companies, those that are just about able to survive by servicing the interest on their loans, remain a feature of the UK corporate landscape.”

Compulsory liquidations, where a court enforces a winding-up order, rose 11.8% from the final quarter of 2012, which Mr Bushby said could suggest HM Revenue & Customs getting tough on unpaid tax bills.

Companies have been helped by the cheaper cost of finance, held down by the Bank of England’s record-low benchmark rate of 0.5%, plus other stimulus measures such as the state’s Funding for Lending Scheme.

But Stewart Baird, director of business investment company Stone Ventures, said: “A relatively benign insolvency landscape should not be mistaken for an economy in a state of good health.

“There is something artificial about the current liquidation rate and I suspect we may see corporate insolvencies start to rise again at some point.”

The Insolvency Service also said personal insolvencies dropped to their lowest level in five years during the quarter.