Insolvency Newsletter August 2012

18.7% year-on-year fall in compulsory liquidations

Businesses forced into compulsory liquidations fell by 18.7% in the second quarter of 2012 compared to the same period last year.

During April, May and June this year there were 4,115 compulsory liquidations and creditors’ voluntary liquidations in total across England and Wales on a seasonally adjusted basis.

The figures show the continuing pinch hitting the high street but also highlight a small but positive impact from the Olympics and the Royal Jubilee, according to commentators.

Overall, this was a fall of 3.6% from January, February and March 2012 and 2.4% less than the same quarter a year ago.

In total there were 1,040 compulsory liquidations, a drop of 13.9% on the first three months of 2012 and down on the same quarter of 2011.

There was also a sharp rise in compulsory voluntary agreements (CVAs) which in Q2 2011 stood at 187, but leapt 88.2% to 352 in the same period in 2012.

Although, this figure includes 104 CVAs which were part of the 156 companies in the Southern Cross Healthcare Group which went bust during the period.

There were also 3,075 creditors’ voluntary liquidations, which is very slightly up by 0.4% on the start of 2012 and increased marginally more by 4.6% on the corresponding quarter of the previous year.

Additionally, there were 1,310 other corporate insolvencies in Q2 of 2012, not seasonally adjusted, made up of 333 receiverships, 625 administrations and 352 company voluntary arrangements – in all an increase of 6.3% on the same three months a year ago.

Law firm Pinsent Masons restructuring partner Richard Williams said of the figures: “With high street retailers feeling the pinch or, as with Game, going under, and leisure giants such as Thomas Cook struggling, at the half way mark the quarter on quarter fall in corporate insolvencies is unlikely to continue for the remainder of the year.” Originally sourced from: www.credittoday.co.uk

Insolvency figures at four-year low

Personal insolvencies have fallen to a four-year low, despite the toughening economy, official figures show.

Within these figures, bankruptcies are at their lowest since 2003, with 8,088 bankruptcy orders made in the second quarter of this year, representing a 27% drop on a year ago, the Insolvency Service report showed.

The service said that bankruptcy numbers have been affected by the introduction of debt relief orders (DROs), which have risen to reach a similar level to bankruptcies for the first time.

DROs, which were introduced in 2009 and are often dubbed "bankruptcy light", reached a new high in the second quarter of this year at 7,956, an increase of almost 10% on a year ago.

Overall, there were 27,390 personal insolvencies in England and Wales in the second quarter of this year, a 10% decrease on the same period a year ago and the lowest figure since the summer of 2008.

Individual voluntary arrangements (IVAs), which are also included in the figures, were down nearly 7% year-on-year to 11,346. Bankruptcy numbers have now been lower than IVAs for more than a year.

Analysts have said the official figures are the tip of the iceberg for people struggling with debt, with an estimated six million households living on the edge.

Debt charity the Consumer Credit Counseling Service (CCCS) warned that millions of households remain "financially vulnerable".

Delroy Corinaldi, CCCS external affairs director, said: "Insolvency is a very difficult thing to have to face and it is usually at the end of a long struggle of trying to deal with debt. The fact that almost 30,000 people had to do this during April, May and June this year is staggering and highlights just how many households need help with their debt problems.

"It underlines why those who do find themselves in this situation need to be able to access free, independent and expert advice as soon as they begin to struggle with their debt."

Originally sourced from: www.google.com/hostednews photo credit:Debt Settlements from AlbertGelmanInc

146,000 Zombie companies in UK

Eight per cent of UK companies on brink of insolvency.

There are 146,000 "zombie businesses" teetering on the edge of solvency, according to insolvency body R3.

A zombie company is one that is near the point of insolvency but just able to survive – neither failing nor thriving. R3 claims this equates to 8 per cent of UK businesses, which are only able to pay the interest on their debts but not tackle payments around the debt itself.

Lee Manning, R3 president, said, "The implication here is that these businesses have been ‘running on empty’ for quite some time now and with no reserves left in the tank, they may not be able to carry on for much longer.

"Essentially, a zombie business is one that is on the edge of insolvency but has been holding on, often for a prolonged period of time. An insolvent business is one that is unable to pay its debts when they fall due, or a business that has debts greater than the value of its assets. The danger for businesses that are teetering on the edge is that any change of circumstances, such as a rise in interest rates, the loss of a major customer, or suppliers upping their prices, will mean that they will not be able to hang on any longer.

R3 identifies three defining features of a zombie company: having to negotiate payment terms with suppliers; struggling to pay debts; and, facing the probability that if interest rates rise, they will be unable to service debts at all.

Figures released separately from PwC today show that a total of 3,927 companies became insolvent in the second quarter of 2012, including 664 in the construction sector, 472 in manufacturing and 426 in retail.

The retail sector had the highest number of businesses that will be unable to pay their debts in the event of an interest rise, according to R3. More than 18% - 31,000 businesses – are in this position. Similarly, 16% of the construction sector is only able to pay the interest on their debts and not pay down the principal debt itself.

Since the start of 2011, over 21,000 jobs have been lost from failures of High Street retailers.

Originally sourced from: www.newstatesman.com

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