9 April 2010
Titles that covered this article include Accountancy Magazine, 12 April 2010, Business Credit Management UK, 12 April 2010, Financial Director, 13 April 2010, Accountancy Age, 13 April 2010, & the Business Desk, 9 April 2010.
- Highest figure since last UK recession
The number of companies entering liquidation in 2009 – 2010 is set to be the highest since 1992 according to figures obtained from Companies House by UHY Hacker Young.
In 2008 – 2009 23,500 companies went into liquidation and this figure is expected to increase to over 25,600 for 2009 – 2010, a rise of 9%.
This will be the largest number of company failures since 1991/92, when the UK started to emerge from the last major recession. In 1991/92 a total of 27,300 businesses were put into liquidation. Liquidation is the process by which a company, or part of a company, is wound up and assets re-distributed. Insolvency is a company’s inability to pay off its debt.
Separate data from the Insolvency Services shows that there were over five times as many company liquidations as company insolvencies; 4,161 companies became insolvent in the last year.
Nick Hancock, Corporate Recovery Partner at UHY Hacker Young, comments: “Whilst these figures are testament to the tough trading environment faced by businesses over the last two years, we expect the rate of liquidations to continue to accelerate.”
“Although the UK economy crawled out of recession late last year, there is always a lag between a return to growth and the fall in company liquidations. In fact, liquidations usually peak as the economy emerges from recession.”
He adds: “Many companies are choosing to throw in the towel and cease trading early rather than hanging on until the bitter end and waiting until they are insolvent. Other business owners are voluntarily closing less profitable subsidiaries in order to streamline and free up capital to support their core operations.”
According to UHY Hacker Young, the number of liquidations would be higher but for unprecedented support initiatives introduced by the Government, which have helped struggling companies stay afloat.
Nick Hancock says: “The Government introduced unprecedented measures to try and stem the rate of company failures during the recession. Without this support, the number of liquidations would undoubtedly be higher. Even with financial help, there is only so long companies can limp on without a significant improvement in the economy.”
In late 2008, the Treasury introduced various funding initiatives for Small and Medium Enterprises (SMEs) such as the Enterprise Finance Guarantee Scheme and the Time to Pay Scheme. The Enterprise Finance Guarantee Scheme is a Government-backed loan scheme for SMEs, and Time To Pay enables struggling businesses to defer tax payments to HMRC.
Nick Hancock adds: “These initiatives are likely to be wound down in light of the current Government deficit. The Government has been leaning on the banks and HMRC to go easy on companies but once the election is out of the way, creditors will toughen their stance. The high street banks and HMRC are responsible for a large proportion of petitions to wind-up companies, so any hardening of their position will lead to a significant spike in liquidations.”
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