Exaro News Archive

Business recovers as UK economy suffers fewer company failures

Insolvency Index: retail, IT consultancies and Northern Ireland all see strengthening data

By Tim Wood and Henry Kirby | 30 June 2014

Company failures continued to fall in the UK in the latest monthly figures from the Exaro Insolvency Index.

With a sharp drop in companies that entered the early stages of the insolvency process, the figures provide some optimism to specialists in business recovery about the overall economy.

In May, 2,477 companies filed one or more insolvency notices, down 2.6 per cent from 2,542 for the same month last year.

The May figure was also down on the 2,611 for April, which was itself a year-on-year fall of 2.8 per cent. April was the first month of the year to see a decrease in insolvencies in the UK.

Giles Frampton, president of R3, also known as the Association of Business Recovery Professionals, said that the figures from the Exaro Insolvency Index showed how the economy had entered a new post-recession phase.

He said: “Corporate insolvencies usually peak after a recession, and an increase can be evidence that economic recovery is underway.

“However, in recent years, record-low interest rates and creditor forbearance have meant that corporate insolvencies have not ballooned.”

But he had a warning: “With interest rate rises expected soon, we must be wary of the long-term outlook. R3’s research shows that one in five businesses will struggle with an increase of one per cent in the interest rate in the next 18 months.

“Any rise in the interest rate would have the biggest impact on ‘zombie’ businesses, those that are already only paying the interest on their debts but not the debt itself, and personal finances.

“With 103,000 zombie businesses in the UK, the consequences of a rise in the interest rate will no doubt be carefully thought through by policy-makers before any rise is announced.”

The number of companies that went into administration or receivership – early stages of insolvency – dropped year on year by 42 per cent in May. The figure fell from 186 in May 2013 to 108 last month.

There were increases in the other insolvency stages year on year last month, as shown in the top two graphs to the right, which can be clicked to enlarge.

The quarter to May saw a fall of 26 per cent on the same period last year, going from 600 to 447. Again, there were increases in the other insolvency stages, as shown in the second graph.

The Exaro Insolvency Index, the most comprehensive survey of company failures in the UK, also shows that the numbers fell stronger in the retail sector than the overall economy.

In May, 302 retail companies were going through the insolvency process, down 4.7 per cent from 317 for the same month last year.

And there was a big improvement in the number of retail companies that went into administration or receivership. The figure fell by more than half, going from 33 in May 2013 to 14 last month.

The quarter to May saw 51 companies go into administration or receivership, down 39 per cent on 83 for the same period for last year.

There were increases in the other insolvency stages year on year last month and for the quarter to May. The final two graphs show the patterns.

A spokesman for the British Retail Consortium, the trade body, said: “Declining retail insolvencies are yet another demonstration of the resilience of our industry. Retailers have fought hard during recent economic travails.”

“Now that consumers are taking tentative steps back out on to the nation’s high streets, retailers are well placed to take full advantage of a market on the brink of resurgence.”

Meanwhile, as information and communication companies generally see a levelling off in company failures, IT consultancies especially are suffering fewer insolvencies.

Northern Ireland has again benefitted from a dramatic decrease in company failures. The number of companies that were going through insolvency in the region dropped from 70 in May 2013 to 49 last month – a fall of 30 per cent.

By Exaro News

Exaro News investigates matters of public interest and seeks to uncover the truth.