Corporate insolvencies fall - a temporary blip?
The headlines from the statistics released last week by the Insolvency Service focus on the record increase in personal insolvencies. There has been an increase of 24.9% on the same quarter last year and 2009 as a whole is 25.9% up on the previous year.
As far as corporate insolvencies are concerned there are marked differences across the different types of insolvency procedure. For liquidations there has been a 23% increase in cases on 2008 whilst the numbers for administrations, after eliminating anomolies, shows just a 1.7% increase for the year. By comparison to the changes on the same quarter last year liquidations have a 1% fall but administrations a drop of some 34%. A closer examination of the numbers show that across all forms of corporate insolvencies the numbers increased throughout 2009 with liquidations and administrations peaking in the second quarter of 2009. The notable exception was company voluntary arrangements, which are continuing to rise. The reduction in liquidations and administrations is likely to be as a result of the reticence of the banks and HMRC to initiate formal insolvency proceedings during this period with the latter promoting their Business Payment Support Service (so called 'time to pay' arrangements) . There is also a greater willingness to support CVAs to maximise the chance of recovery from creditors.
The key question is what is going to happen in the coming months? History dictates that now that we are technically out of recession we can expect the number of insolvencies to climb in the months ahead. Following the recession of the late eighties and early nineties, the level of liquidations did not peak until 1992. This time around the recession has hit harder and whilst I think there can be little doubt that corporate insolvencies will begin to climb again in the near future and will take a long time to fall back to pre-recession levels, the timescale and the level to which they will rise is more difficult to determine.
Peter Godfrey-Evans is a Restructuring & Insolvency partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Peter you can call him on 01908 605552.
Date: 8th February, 2010
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