Press Releases

06 November 2009

Latest insolvency figures: winding down of Government support will lead to an even higher number of corporate failures

The latest figures published by The Insolvency Service today reveal that the number of corporate insolvencies in England and Wales has risen by 14.6% in the past year to reach 4,716in the third quarter of 2009. Wilkins Kennedy says that Government initiatives designed to support businesses are due to be wound up over the coming months and this will spark an even greater number of business failures.

There were 35,242 individual insolvencies in the last quarter, an increase of 28.2% on the same period a year ago.

Comments from Anthony Cork, Director, Top 25 accountants Wilkins Kennedy Tel: 020 7403 1877

“Many companies are surviving the recession sustained only by Government initiatives such as HMRC’s Time to Pay. The Government is now owed over £1 billion in delayed tax payments and this cannot roll on indefinitely.”

“After all the steroids the Government has pumped into the economy the risk comes when these initiatives are wound down. A sudden withdrawal of Government support forcing businesses to go “cold turkey” will lead to real problems. This could be made even worse if interest rates begin to climb again.”

Government initiatives due to come to an end include:

• Stamp duty holiday – due to end December 2010
• The lower 15% rate of VAT – due to end January 1 2010
• The car scrappage scheme – due to end in February 2010
• Enterprise Finance Guarantee – Due to end March 2010

“Businesses have managed to survive by constantly cutting costs. These are now down to the bone. As the recession drags on their options are beginning to run out.”

“More and more businesses are trying to restructure through Pre-pack administrations. Company Voluntary Arrangements have also been growing in popularity. However, the Government has just begun a crackdown on pre-packs, with HMRC demanding that six months of VAT be paid upfront before it allows companies to begin trading again.”

“This escape route had kept businesses running and secured a lot of jobs. If HMRC starts getting too tough this will lead to even more corporate failures and the job losses associated with this.”

“Banks are continuing to come under pressure from the Government to give struggling companies some breathing space. They are also delaying liquidating businesses because low asset values are acting as a barrier to recovering the debts owed to them.”

“Once asset values begin to recover we could see a spike in the number of insolvencies”

No let up in the rise in personal insolvencies

“The number of personal insolvencies was rapidly ratcheting upwards even before the downturn so the Government has left it very late in the day to propose tightening up credit card lending and to encourage people to repay debts faster.”

“This really is a case of shutting the stable door when the barn is on fire! In addition cutting credit lines now and paying down debt is not the right thing to do until the economy has recovered.”

“Historically unemployment has continued to rise even as the economy begins to recover and this means that personal insolvencies can only soar even further. Things are likely to become very bloody indeed.”

“Those who have already suffered job losses are just beginning to be represented in these figures but there are many more behind them who are still battling to weather the storm.”

“Even those who have kept their jobs but have seen their hours or pay cut will be grappling to meet repayments on outstanding debts on a reduced salary.”

“Banks are still being constrained from repossessing the homes of those who have fallen into arrears with their mortgages, with the Government and FSA coming down hard on those seen to be swooping in on borrowers too quickly.”

“Many banks are wary of incurring the Government’s wrath yet again and are reluctant to pull the rug from under those struggling to repay their debts just yet.”

ENDS

Press enquiries:

Anthony Cork
Wilkins Kennedy
Tel: 020 7403 1877

Jane Lougher or Nick Mattison
Mattison Public Relations
Tel: 020 7645 3636