Experts surprised as corporate insolvencies drop

Insolvencies normally rise during an upturn but official figures show the number of liquidations heading south in Q3

Corporate insolvencies fell in Q3 as the expected spike in liquidations that normally accompanies an upturn did not materialise.

According to official figures from the Insolvency Service, the number of compulsory and voluntary liquidations in England and Wales fell two per cent year on year to 3,875 in the three months to 30 September.

Other corporate insolvency procedures, which comprise administrations, receiverships and voluntary arrangements (CVAs), fell 3.8 per cent on last year in England and Wales.

Meanwhile, the number of corporate insolvencies in Scotland and Northern Ireland fell by 8.9 per cent in Q3 to 257, year on year.

Perversely, the number of insolvencies normally rises during an upturn as firms are caught flatfooted by the recovery and creditors begin to exert more pressure on late-paying customers after going easy during the downturn.

Phillip Sykes, deputy vice president of insolvency trade body R3, was not expecting the figures to head south given the recent rise in GDP figures.

"The decrease in corporate insolvencies is slightly surprising. Economic recovery usually heralds an increase in insolvencies," he said.

"Although we've heard reports of creditor pressure increasing, businesses may also be receiving a helping hand from their employees. Employees making sacrifices to keep their employer afloat was not uncommon during the depths of the recession, and, as the recent Grangemouth story showed, this phenomenon may still be going on."

Of the 3,875 liquidations in England and Wales, 964 were compulsory liquidations and 2,911 were creditors' voluntary liquidations. The total figure was down 2.6 per cent quarter on quarter.

At 0.6 per cent of all active registered companies, the liquidation rate remains historically low compared to a peak of 2.6 per cent and the average of 1.2 per cent seen over the past 25 years – although this is partly explained by the fact there are three times as many registered companies as there were 20 years ago.

Individual insolvencies in England and Wales also fell by 7.3 per cent year on year, to 26,030.