Insolvency figures reveal pressure on property sector

By August 5, 2011Finance, News, Property

Official insolvency figures released today reflect the intense pressure facing landlords and small firms, according to the insolvency trade body R3. It says the statistics also indicate a clearout of ‘zombie companies’ by HMRC.

 

The figures for the second quarter of 2011 show that, while the number of administrations fell by ten per cent compared to the same period the previous year (down from 777 to 695), receiverships rose by almost 16 per cent (up from 302 to 350).

 

Jeremy Oddie, North West regional chair of R3 and head of recoveries at Mitchell Charlesworth, explains: “Receivership is a process now almost exclusively used in cases involving property businesses. The vast majority of these will be companies or individuals with a property portfolio who have defaulted on their mortgage repayments.

 

“The figures reflect the intense pressure on landlords, particularly those with retail properties. Many of them will have borrowed money some time ago when interest rates were higher. Not only are they paying over the odds, they are also facing the loss of rental income as tenant companies collapse or properties are left standing empty.”

 

The figures also show self-employed bankruptcies running at noticeably higher levels than before. In the first quarter of the year, 20.6 per cent of personal bankruptcies involved a trading debt. (Equivalent figures are not yet available for the second quarter.) This would indicate a total of over 6,000 self-employed bankruptcies each year.

 

Jeremy Oddie added: “The self-employed and small firms are having a really tough time. They are disadvantaged in trading terms, much more susceptible to bad debts, the loss of a trading relationship or being squeezed for credit by customers. These traders have made it through the worst of the recession but can hold out no longer.”

 

The figures also show that compulsory liquidations rose by almost 20 per cent in the second quarter compared to the previous quarter (up from 1,077 to 1,290). Jeremy Oddie added: “It is likely that HMRC is responsible for most of these liquidations. These are businesses which don’t even have the money to wind themselves up. Some of them will no doubt have already delayed tax under the Time to Pay scheme. It would confirm our own experience, that HMRC is getting fed up with non-payers and is engaged in a clear-out of ‘zombie companies’.”

 

The statistics also show a slight rise in personal insolvencies, after falling steadily for a year (up to 30,513 from 34,743 a year ago). Jeremy Oddie said: “The increase is understandable, given the job cuts in both public and private sectors, alongside rising living costs. Unfortunately, this data does not capture the figures for those in informal insolvency procedures such as debt management plans (DMPs) so we are unable to get a true measure of how many households are struggling. R3 research revealed that 43 per cent of people in the North West struggle to make it to payday each month and 27 per cent have no savings.”

 

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