Drop in corporate insolvencies doesn't tell the full story

Economic recovery and potential rise in interest rates may put upward pressure on businesses, warns trade body

Low interest rates and "creditor forbearance" may be keeping business failures artificially low as the UK recovery gathers steam, insolvency trade body R3 has warned.

Figures from the Insolvency Service reveal yet another drop in corporate insolvencies in Q4 - defying the historic pattern of business failures increasing as the economy exits a recession.

There were 3,552 compulsory liquidations and creditors' voluntary liquidations in England and Wales in the three months to 31 December, seven per cent down on both a quarter-on-quarter and annual comparison.

Other types of corporate insolvencies - namely receiverships, administrations and company voluntary arrangements - also fell by 0.6 per cent to 1,001 in the three months to 31 December.

This means that corporate insolvencies are now a third down on their peak at the end of 2008, but R3 warned that this downward trend may not continue for long.

"The early stages of an economic recovery are often a lot harder for some businesses to negotiate than recessions themselves," said Giles Frampton, vice president of R3.

"Stuttering growth, low interest rates, and creditor forbearance have helped keep corporate insolvencies lower than they normally would have been since the recession. Some businesses will have taken advantage of the extended gap between recession and growth to put their finances back in order, but this won't be the case for everyone."

Frampton added: "The economic recovery and any future rise in interest rates is likely to put upward pressure on insolvencies."

For the whole of 2014, compulsory liquidations and creditors' voluntary liquidations fell by 7.3 per cent to 14,982. The number of "other" corporate insolvencies dropped 16 per cent to 3,859.