There has been a sharp increase in the number of limited businesses going bust, according to the latest insolvency report from Experian®, the global information solutions company. During the second quarter of 2005, corporate failure leapt by almost 11 per cent, with 4,574 businesses going out of business.
After two years of falling insolvency levels, the trend went into reverse in the final quarter of 2004 and accelerated sharply between April and June of this year. The 10.7 per cent increase is the highest quarterly increase since 2002, with 4,574 companies failing, compared with 4,132 in the second quarter of 2004.
So far in 2005, 8,758 businesses have failed – 535 (6.5 per cent) more than during the same period in 2004. Voluntary liquidations increased by 10.5 per cent during the second quarter of 2005 to 2,346, compulsory liquidations increased by 6.3 per cent to 1,348, administration orders by 44.9 per cent to 568 and voluntary arrangements by 26.1 per cent to 179. On the other hand, receiverships fell by 35.7 per cent to 133.
Administration orders rose in the South East (up 114.5 per cent) and the North East (up 70.5 per cent), providing some breathing space from creditors and enabling those companies to put measures in place to help stave off failure.
Richard Lloyd, Managing Director of Experian’s Business Information division, said: “We haven’t seen this level of increase in business insolvencies since the third quarter of 2002 when we recorded an increase of 16 per cent over the third quarter of 2001. In both 2003 and 2004, business failures were on the decline and only picked up again in the last three months of 2004, when there was an increase of 0.2 per cent. Business failures increased by 1.9 per cent during the first three months of this year, so the rate of increase has leapt by more than five times to the 10.7 per cent recorded in the last three months.
“Experian had forecast the increase in business failures, but the latest surge is significantly more than we had expected at this stage of the economic cycle and underlines the critical need for good credit management practice. By making the necessary checks on their customers, prospects and suppliers, businesses can be forewarned about whether any of them are facing cash flow difficulties and possible failure. By taking the necessary action at the right time, businesses can prevent themselves going the same way and bearing the brunt of another company’s business failure.”
23 out of the 34 industries surveyed by Experian recorded an increase in business failures in the second quarter of 2005. These included Hiring & Leasing (up 35 per cent), Transport (up 35 per cent) and Food Manufacturing (up 46.7 per cent). Although not the highest increase, Non-food retailers recorded one of the highest failure rates – 179 companies, bringing the total for the first six months of the year to 359 – an a dramatic demonstration of the effects that the downturn in consumer spending is having on the retail sector.
The highest number of failures in the three months from April to June was recorded in Business Services (793, up from 745) and Construction (407, up from 400). Business Services are always among the first to suffer when their customers take steps to control their costs, with the result that more than 1,500 companies in the sector have already gone to the wall this year.
By regions, the North East recorded the highest increase in business failures – up by 61 per cent (to 103) compared to the second quarter of 2004. All other regions, apart from the City of London and Wales recorded increases in business failure, with the Midlands and Northern England hardest hit. Outside London and the South East, the highest number of failures was recorded in the North West – up by 20 per cent to 583, bringing the total so far this year to more than 1,000.
Richard Lloyd concludes: “There is no doubt that economic conditions have become much tougher in the last nine months or so, with the dangers from customers failing as high as they were in the recession of the early 1990s. By carrying out regular business information checks on both new and existing customers, as well as suppliers, businesses can help ensure that the risks of exposure to business failures and bad debt are significantly reduced.”
Re: UK businesses hit by big increase in insolvencies
July 31 2005, 6:37 PM
Midland business failures on rise
2005-07-30
By Gavin Haycock
The number of business failures in the second three months of 2005 jumped by 10.7 per cent to its highest level in three years, according to Experian.
Research by the credit-checking specialist showed that 4,574 UK businesses went under in the second quarter compared with 4,132 a year ago with the Midlands one of the regions hardest hit.
"We haven't seen this level of increase in business insolvencies since the third quarter of 2002 when we recorded an increase of 16 per cent over the third quarter of 2001," said Richard Lloyd, managing director of Experian's business information division.
The insolvency figures add to a growing list of indicators highlighting how a slowdown in household spending and five interest rate hikes between November 2003 and last August to 4.75 percent have started to pinch already stretched households.
Figures from the Nationwide on Thursday showed that house price inflation had fallen to its slowest rate in more than nine years in July - the first time since May 1996 that annual property gains have slipped below pay rises.
However, such data come at a time when European shares are trading at three-year highs, the FTSE 100 index is up by about eight per cent over the past three months and merger activity and flotations have picked up strongly.
Morgan Stanley strategists Charlotte Swing and Graham Secker said in a research note that although the economy is set for a sustained period of sub-trend growth, equities have further to run.
Morgan Stanley is targeting a level of 5,700 for the FTSE 100 by next June, a figure 8.2 per cent higher than the blue-chip index's closing level of 5,270.3 on Thursday.
But Experian said more than 8,750 businesses have failed this year, with business services accounting for the industry with the highest failures followed by construction.
Business services are always among the first to suffer when customers take steps to control their costs, Experian said. It added that non-food retailers posted one of the highest failure rates - 179 companies - bringing the total for the first six months of the year to 359.
The figures highlighted the effects that the downturn in consumer spending was having on the retail sector, Experian said.
"There is no doubt that economic conditions have become much tougher in the last nine months or so, with the dangers from customers failing as high as they were in the recession of the early 1990s," Mr Lloyd said.
On Wednesday, the Department of Constitutional Affairs said the number of court actions entered to repossess homes for mortgage arrears soared by 52 per cent on the year as higher interest rates took their toll on borrowers.
The Council of Mortgage Lenders said the number of actual repossessions rose in the first half of the year, as did the number of homeowners falling behind on mortgage payments.
By region, Experian said the northeast had the highest rise in business failures, up 61 percent to 103 compared with the second quarter of 2004.
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