Corporate insolvencies at lowest level since 2007

Articles 11.05.2015 Author: Carl Bowles

This article appeared first in The Telegraph

The number of company liquidations has now returned to pre-crisis levels, although fears about ‘zombie’ companies remain.

Company insolvencies have fallen back to pre-crisis levels, with the number of liquidations in the first three months of the year at the lowest number since late 2007.

Some 4,052 businesses were dissolved in the first quarter of the year, a 6pc drop on the same time a year ago. However, the number of compulsory liquidations rose 9.3pc on the previous quarter to 904.

Graham Bushby, head of restructuring and recovery at accountancy firm Baker Tilly, said a significant number of companies were servicing their debts on an interest-only basis, which could leave many companies in a vulnerable position if interest rates were to rise.

“The statistics don’t really tell the whole story as there are many companies still experiencing significant financial distress and a number of reasons why we could see insolvency levels rising again within the next one to two years,” he said. “Zombie” companies have been a concern for many economists, who say they risk slowing Britain’s economic recovery if a rise in interest rates pushes them out of business.

“Low interest rates, banks’ forbearance and, arguably, the leniency of HMRC ahead of a general election have combined to cushion struggling companies,” said Carl Bowles, an insolvency practitioner at accountancy firm Carter Backer Winter.

“However, a rise in interest rates, which is likely to happen towards the end of this year, will increase the cost of money, which in turn will impact on the forbearance models of the banks.”

These firms are typically loss-makers, which, helped by low borrowing costs, can only afford interest repayments on their loans. There are estimated to be around 340,000 “zombie” companies in the UK, a total that has trebled from 109,000 at the height of the recession in 2009.

The number of people becoming insolvent in England and Wales has also fallen, the government data showed.

Almost 21,000 individuals became insolvent in the first three months of the year, the lowest figure since autumn 2005, and a fall of 18.6pc compared to a year ago.

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