Upbeat insolvency stats are "tip of debt iceberg"

UK plc urged to brace for business failure hike when tax breaks are removed and interest rates rise

Tax relief: HMRC has allowed UK firms to delay paying more than £5bn in tax

Corporate insolvencies in 2010's second quarter continued to decline on 2009 levels, but onlookers predict the floodgates could still open around the turn of the year.

Figures released today by the Insolvency Service reveal there were 4,080 company liquidations in England and Wales during Q2, a drop of 19.1 per cent on the same period last year. Of these, 1,169 were compulsory, while 2,911 were creditors' voluntary liquidations.

Additionally, there were 302 receiverships during the quarter, a drop of 12.5 per cent year on year. Administrations fell 24.3 per cent to 777. However, individual insolvencies were up five per cent year on year to 34,743.

Insolvency trade body R3 claims both the corporate and personal insolvency figures could belie the gravity of the UK's debt problem. R3 president Steven Law claimed the individual insolvency numbers "are just the tip of the debt iceberg".

"The true size of the UK’s debt problem remains hidden, as the insolvency industry estimates there are an additional 500,000 people currently in informal debt management plans and close to a million people are struggling with their debts [who] have not yet sought help," he explained.

Law added that the expected post-recession hike in company insolvencies could take place just before or after the turn of the year. A key factor in keeping struggling companies afloat up until now has been HMRC's Time To Pay tax deferral scheme, claimed Law.

Under the programme, more than £5bn of tax payments have been delayed. Low interest rates have also reduced the cost of servicing debt, according to R3.

“The early stages of recovery are typically a challenging time for businesses as creditors begin to be more aggressive in their debt collection, but, from what I am seeing, creditors are being more lenient than in previous recessions, " said Law.

"If you ask two experts their predictions for the future you are likely to get two very different answers, but we can expect to see a rise in corporate insolvencies when interest rates rise and as the Time to Pay facility becomes squeezed.”