Personal insolvencies on the rise in channel

Despite the rate of business failure slowing, personal insolvency is on the up

Cliff Fox: More UK resellers are turning to personal guarantees to save their companies

Although IT business failures slowed dramatically in August, experts have warned of a spike in personal insolvencies in the channel.

According to credit checking firm Experian, 59 firms in the UK IT sector hit the wall in August, down from 76 in July and the lowest figure since January. Financial distress levels in the IT sector also fell to a two-year low.

However, Nitin Joshi, founder of ChannelMoney, said the headline figures mask a worrying rise in the number of personal insolvencies in the channel.

“There has been a decrease in business failures; but we have also seen an increase in the number of directors and owners of channel businesses with personal debt problems,” he said.

“Many have had to borrow money from the bank or use their own credit cards. Now they cannot service their personal debt because their company is making insufficient revenue.”

Cliff Fox, managing director of reseller SICL, agreed that more resellers were turning to personal guarantees in a bid to salvage their failing companies.

“In the past six months, we have looked at two acquisition opportunities,” he said.
“Both have been businesses that were in trouble, where the directors have put personal guarantees against their companies. Both have subsequently gone out of business.”

Fox added: “You can understand that their cash and borrowing situations are maybe not as healthy as ours and the owners have had no option but to put personal guarantees against the business to try to salvage it.”

Adam Harris, chief executive of trade body the TCA, said: “With the way credit lines have been cut, resellers have to take more of a personal gamble to ensure continuation of their businesses.”

Meanwhile, the overall UK business failure rate in August fell to its lowest level since September 2008.

There were 1,796 insolvencies last month, the lowest monthly figure so far this year and down 23 per cent on July.