Tougher creditors see insolvencies rise

Insolvency trade body R3 claims increase is down to creditors piling on pressure as economic outlook improves

Creditors are clamping down on debtors as the economy creeps upwards, sparking an increase in both corporate and personal insolvencies.

According to the latest figures from the Insolvency Service, company liquidations in England and Wales are up 12 per cent in the second quarter of 2013, with 4,129 in the quarter, compared with 3,681 in Q1.

Similarly, corporate insolvencies are up 11 per cent to 5,103, from 4,616 in Q1, and individual insolvencies are up three per cent to 25,717, up from 25, 016 in Q1.

Phillip Sykes, deputy vice president of R3, said: “The increase in corporate insolvencies is not wholly surprising. Anecdotal evidence from the profession suggests creditors have taken a tougher stance towards debtors in recent months as the economy begins to improve.

"It is not just the usual suspects, such as HMRC, putting pressure on debtors, but other creditors too. Evidence suggests that winding-up petitions have risen steadily since the start of the year, having previously slumped from their most recent peak in 2009.

He added: "Separately, R3 research has shown that the number of businesses with very serious cashflow problems has climbed over the past 12 months. For the past 60 years, insolvencies have increased after a recession during the early stages of the recovery when the stresses of growth and renewed creditor pressure prove too much for struggling businesses to bear. However, the patchy recovery since the 2008-9 recession has helped prevent this post-recession insolvency spike from occurring.

"Now that the economic recovery is stronger, the likelihood of a jump in corporate insolvencies has increased. That said, a single quarterly increase does not automatically indicate the start of a new trend. We will have to wait and see what the next few quarters hold."

Insolvency stats based on June 2013 R3 Zombie Business Update report:

• 134,000 businesses were struggling to pay debts when they fell due – a technical definition of insolvency – in May 2013, up from 110,000 in June 2012, and up from 101,000 in February 2013.
• 137,000 businesses were negotiating payment terms with creditors in May 2013, up from 130,000 in June 2012, and up from 74,000 in February 2013.
• UK winding-up petitions have increased in Q1 and Q2 of 2013 to 1,593, 39 per cent higher than the 1,150 petitions in Q4 2012 (the quarter with the lowest number of winding-up petitions for at least two decades). This was the first increase in winding-up petitions for two consecutive quarters since Q4 2008 Q4 and Q1 2009.