Rise in administrations reflects pressures of growth – R3

By October 29, 2014Finance, News

The number of business insolvencies continued to fall in the third quarter of 2014, according to official figures released today. However a rise in the number of administrations could reflect the pressures being placed on businesses as they gear up for growth, according to the insolvency trade body R3.

Today’s figures from the government’s Insolvency Service show that 492 companies went into administration during the three months to the end of September, which up 16.9 per cent on the previous quarter although it was still 18.8 per cent lower than the same period in 2013.

There were 3,368 liquidations in total in the third quarter, down by 11.7 per cent on the same period last year. The number of receiverships (175) and company voluntary arrangements (144) were also down on last year.

Richard Wolff, North West chair of R3 and Head of Corporate Recovery and Insolvency at JMW Solicitors, says: “The long-term business insolvency trend is downwards and activity has been very quiet recently. However, growth can lead to rising insolvency levels and this may explain the increase in administrations in the third quarter.

“Businesses can run into trouble after recessions or economic doldrums – as we’ve experienced for the past five years or so – because they’re simply not ready for growth. If a business can’t invest to support its growth, cash flow can become a big problem and the business may find itself ‘over-trading’. Fresh access to finance is crucial to avoid funding gaps.

“Recent R3 research found that 13,000 Northern businesses (4%) are now struggling to repay their debts – the same as when figures peaked in February 2013.

“It is encouraging however to see that while administrations were up on the previous quarter, the number of compulsory liquidations has continued to fall, which shows companies are making greater use of business rescue procedures, rather than waiting to be wound up.”

 

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