Insolvencies continue downward trend but debt time bomb looms

Business failures fall 20 per cent in Q3 but trade body R3 warns of sharp increase next year

Insolvency explosion: R3 members expect 2011 business failures to exceed 2009 levels

Business failures declined by double digits across the board in 2010's third quarter, but experts continue to warn of a nasty surge next year.

Figures from the Insolvency Service reveal there were 3,974 company liquidations in the UK during Q3, a drop of about 14 per cent on the corresponding period last year. Compulsory liquidation numbers stood at 1,126, while 2,847 creditors' voluntary liquidations took place in Q3.

Receiverships fell almost 15 per cent annually to 349, while company voluntary arrangements declined 18 per cent to 159 and administrations were down 35 per cent to 633. Third-quarter individual insolvencies fell 3.7 per cent year on year to 33,935.

Insolvency levels have been dropping all year, but experts have continually warned that the upbeat figures belie UK plc's precarious position. Steven Law, president of insolvency trade body R3, claimed low interest rates, supportive banks and Time to Pay tax deferral agreements have helped keep down business failure rates.

"However, these factors cannot remain with us forever, and we could be benefitting from a calm before the storm," he added.

Research from R3 reveals almost one in five UK firms are concerned about their current debt levels and the trade body warns that a rise in the cost of servicing debt could provoke a spike in insolvency rates.

R3 members are predicting there will be 27,500 UK business failures this year, an increase of more than 1,000 on the 2009 figure. Law counselled concerned companies to seek professional advice as soon as possible.

"We would urge any business concerned about its current debt levels to use these benign conditions to seek advice early to prepare for whatever next year brings, " he said.