| By :
Alison Withers
Copyright (c) 2010 Alison Withers As the consequences of the global financial crisis that began in the autumn of 2008 continue, it is reasonable to assume that the numbers of companies in financial difficulties serious enough to precipitate insolvency would be increasing. However, figures for the second quarter of this year (April to June) released by the UK Insolvency Service in August 2010 show that there were 2,080 companies in England and Wales that were placed into liquidation. These are made up of compulsory liquidations and creditors voluntary liquidations. The figures showed a 0.5% increase on the previous quarter but a decrease of 19.1% on the same quarter in 2009. Compulsory liquidations were down 9.9% on the previous quarter and 21.0% on the corresponding quarter in 2009, while creditor voluntary liquidations were up 5.4% compared with the previous quarter but down 18.3% compared to the same quarter in 2009. Other corporate insolvencies in the same period (made up of receiverships, administrations and company voluntary arrangements) also showed a decrease, of 14.3% compared to the same quarter in 2009. It is tempting to deduce from these figures that the economy is on the path to recovery and the pressure on companies is easing. However, it is being suggested that the decline in liquidations is hiding the numbers of companies that are in financial difficulties because of a lack of pressure from creditors other than HMRC (Her Majesty's Revenue and Customs) which is currently the only active creditor seeking winding up orders in the courts. The outcome of the government's Comprehensive Spending Review in October 2010 may reveal the full impact on UK insolvencies, say business rescue advisers, some of who suggest that even if the country avoides a double dip recession there is a risk that the UK could develop a twin-track economy in which public sector-dependent companies might face higher levels of financial distress than sectors less directly linked to the government spending cuts. Some commentators argue that while Corporate insolvencies are still well below the numbers that would normally be expected at this point in the cycle and the slight quarterly rise in the number of liquidations may signal that conditions are starting to turn against UK companies once again. The question, however, is whether this is a normal cycle. The lower than expected incidence of insolvencies is being ascribed to various proactive measures, HMRC Time to Pay arrangements and bank forbearance, together buying time for companies and allowing them to deal with their financial situation. However, this may possibly only have delayed the inevitable for other businesses that are less robust or those that fail to use the time by taking action to reduce costs or put in place other steps to ensure survival. Industry surveys have been more down-beat in the third quarter, particularly in the parts of the service sector that may be vulnerable to the impact of public sector austerity and it is these sectors that are most likely to be under pressure. It there fore makes sense for those companies just clinging on by their fingernails to call in a rescue adviser to carry out a thorough review of their business viability, pinpoint any weakenesses and offer a structerd plan to help them through the expected slow-down and avoid being catapulted into a crisis from which it may not be possible to recover. Leaving it to the point where the situation becomes critical is leaving it too late. On the other hand, being proactive by planning and implementing remedial measures may just help with survival.
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