The IT sector has seen a 28 per cent decline in the number of firms going bust in the past year, according to market watcher Experian.
The analyst claims corporate failures are at their lowest level since the third quarter of 2001, with 4,063 failures in Q1 2004, compared with 4,417 in Q1 2003.
Ellen Carroll, an Experian representative, told CRN that last year's Insolvency Act had saved firms from going down the liquidation path.
As part of the Enterprise Act 2002, the Corporate Insolvency rules were designed to shift emphasis onto rescue, and removed the preferential rights of official bodies, such as the Inland Revenue and Customs and Excise, to recover unpaid taxes ahead of unsecured creditors.
"Before (the Act), firms would just fail, but now they are exploring all the options and using information more effectively to survive," Carroll said.
However, Ernst & Young released conflicting research last week which stated the number of profit warnings in the software and computing services sector has risen from eight in Q4 2003 to 11 in Q1 2004.
Nick Powell, UK head of technology at Ernst & Young, said: "Although the market is stabilising, particularly for larger companies, there are still challenges. Deals are taking longer to close than some businesses were expecting."
Philip Long, head of corporate recovery at accountant and insolvency specialist PKF, agreed a number of businesses are still struggling. But he added: "We are getting into a cycle in the IT sector at the moment where there is a lot of spend because firms are upgrading technology.
"This seems to happen in a five-year cycle, but it is worrying because there is a finite size to the market. Often there is a dominant provider that is doing well to the detriment of smaller players.
"Confidence in the economy seems to be the result of house prices going up. But this is driven by borrowed money, and if interest rates keep rising there will be a break in the economy that will have a knock-on effect on the business sector."
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