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Credit crunch hits UK businesses

The number of companies facing insolvent liquidation rose by 15% during the second quarter of 2008, as compared to the same period last year, as the credit crunch continues to impact upon the UK economy.

Figures from The Insolvency Service published on 1 August 2008 revealed that there were 3,560 compulsory liquidations and creditors' voluntary liquidations (CVLs) in England and Wales during the second quarter of 2008. This was made up of 1,324 compulsory liquidations, an increase of 19.8% on the previous quarter, and 2,236 CVLs, an increase of 7.3%.

Further evidence of an economic slowdown was highlighted by 1,246 other corporate insolvencies, comprising 177 receiverships, 938 administrations and 131 company voluntary arrangements, an increase of 63% compared to the same period last year.

These numbers support the findings of a recent survey (July 2008) undertaken by R3, the trade body for insolvency practitioners, which showed that 90% of respondents believed that a rise in business insolvencies would hit the UK in 12 months’ time, indicating that the worse is still to come.

The Insolvency Service figures support this survey and highlight retail, construction, property, leisure and manufacturing among the worst affected sectors as consumers rein in spending in the face of rising inflation rates and a deteriorating property market.

Offering his reaction to the latest statistics, Steve Smith, Head of Insolvency at Mercer & Hole comments: “These are very worrying figures and do not bode well for the UK corporate sector - particularly for small to medium-sized businesses which suffer most in a downturn. Of particular note is the rise in compulsory liquidation numbers which suggests that creditors are now seeking to recover their debts more aggressively as other forms of recovery become less effective.” 



Date: 2nd August, 2008
Author: Caroline Stark


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