Sluggish recovery is price to pay for fall in business failures, says R3

By February 1, 2013Finance, News

The number of business failures fell in 2012, according to an analysis by R3 of the official insolvency statistics released today.

The figures show that administrations were down by around 10% from 2,808 in 2011 to 2,532 in 2012, while receiverships dropped by almost 13% from 1,397 to 1,222 and liquidations were down 4% from 16, 886 to 16,138. Although the number of CVAs was nominally higher (up from 767 to 839), this was due to the large number of separate companies in the Southern Cross care home cases and the underlying trend was around 11 per cent down.

Jeremy Oddie, North West chair of R3 and head of recoveries at Mitchell Charlesworth, said: “Given the fears of a triple dip recession, this drop in business failures is welcome. Business insolvency rates are low compared with previous recessions. However, R3’s research suggests that this is partly due to the growing number of ‘zombie companies’ which are being kept alive by lenient creditors and low interest rates. Our figures show there are now 160,000 zombie businesses in the UK.

“Whilst low insolvency rates are good for employment, after previous recessions a rise in insolvencies did clear the ground for a quicker return to growth, whereas now we are experiencing a sluggish,drawn out recovery. This stagnation ties up capital that could be used for other, healthier businesses – a reallocation of capital could be what the economy needs to stimulate growth.

“In addition, these figures do not take into account the size and impact of the businesses that fall into insolvency. In 2012 we saw some high profile retail casualties including Comet, La Senza, Game and Clinton Cards. The biggest 12 retail insolvencies accounted for over 1,700 store closures and 26,500 jobs. That is over a fifth of the total redundancies resulting from insolvency in a year. ”

 

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