Press Releases

09 September 2009

Insolvencies of property and construction companies more than double since credit crunch started to 17 a day

• Real estate and construction now account for one in four of all corporate insolvencies
• Hotel company goes bust every other day – despite “staycations”
• Top ten sectors by the biggest increase in insolvencies

The number of property and construction companies going bust is now running at more than twice the rate that they were at the start of the credit crunch in the third quarter of 2007 when the run on Northern Rock occurred (September 13) reveals research by Top 25 accountancy firm Wilkins Kennedy.

According to Wilkins Kennedy’s research more than 17 real estate and construction related businesses are currently going bust everyday (1,573 in Q2 2009) compared to 7.6 when the credit crunch first enveloped the UK economy (696 in Q3 2007).

Wilkins Kennedy’s research based on Insolvency Service statistics found that the real estate and construction sectors now make up by far the largest proportion of all corporate insolvencies, accounting for one in every four (24%) of all insolvencies in Q2 2009, up from 17% of all insolvencies in Q3 2007 at the beginning of the credit crunch.

The number of corporate insolvencies in the hotel sector has nearly trebled from 18 in Q3 2007 to approximately 53 in Q2 2009 – which is more than one UK hotel company every other day.

Hotels hit hard despite “staycations”
Anthony Cork, Director, of Wilkins Kennedy, comments: “The crash in property values has not just impacted on the real estate and construction sector. It has also sent a shockwave through the other sectors like hotels where property makes up a substantial part of a company’s value.”

“Despite the rise of the “staycation” UK hotel groups are going under at a faster rate than ever. In part this is because banks are understandably reluctant to lend to companies whose underlying assets are based on property and that means hotels.”

“Commercial property values have crashed, bank shareholders including the UK taxpayer have had their fingers burnt and a modest rise in the number of UK holiday makers staying at home can’t make up the weakness in the asset value of hotels. Unfortunately the average UK hotel just isn’t worth what it was a couple of years ago.”

“The growth in the “staycation” might not cover the revenue UK hotels have lost from cutbacks in business travel, lower spend on corporate conferences and the lower spend per guest on extras like spas, room-service and dinner.”

Overall Insolvency Service statistics show that there were 6,588 companies that became insolvent during the second quarter of 2009, a 65% increase since the third quarter of 2007. The research by Wilkins Kennedy was based on a sample of over 5,000 insolvencies.

Wilkins Kennedy points out that many subsectors of the manufacturing industry are seeing some of the biggest rises in financial stress, for example insolvencies in the basic metal products sector went up 157% from 91 in Q3 2007 to approx. 234 in Q2 2009.

Anthony Cork says that this highlights the vulnerability of large parts of the British manufacturing industry – in a credit crunch that commentators thought would show the virtue of a large manufacturing sector.

IT sector suffers from slashing of investment budgets
According to Wilkins Kennedy, company insolvencies in the IT sector increased by 90% from 109 at the start of the credit crunch in Q3 2007 to 207 in Q2 2009.

Explains Anthony Cork: “IT investment seems to have been one of the first areas of business spending to be cut in this recession. The scale of the increase in insolvencies in this area is quite worrying considering that the IT sector is a critical part of the UK economy. Long term the UK economy will lose its competitive edge if it under invests in IT.”

Perhaps unsurprisingly Wilkins Kennedy’s research found that companies directly engaged in the public sector such as public administration, defence and education have been the most insulated from the credit crunch. They have all seen their proportion of insolvencies fall since the beginning of the credit crunch with the “public administration & defence sector” seeing the biggest fall of 42% from 9 insolvencies in Q3 2007 to 5 in Q2 2009.

Source: Insolvency Service/Wilkins Kennedy
*Provisional data

ENDS

Press enquiries:

Anthony Cork
Director
Wilkins Kennedy
Tel: 020 7403 1877
Mobile: 078 8060 1962

Keith Stevens
Partner
Wilkins Kennedy
Tel: 01784 435 561
Mobile: 07880 601 961

Nick Mattison or Fay Israsena
Mattison Public Relations
Tel: 020 7645 3636