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Liquidations slow down in Q4, but it’s not over yet

In total, there were 19,077 compulsory and voluntary liquidations last year, data from the Insolvency Service shows, a 22.8 per cent jump on 2008. This works out at about one in 114 active companies going bust.

While compulsory liquidations, where a winding-up order is obtained from the court, were only up by 2.7 per cent year-on-year; voluntary liquidations, where the directors themselves pass a resolution to pack up shop, shot up by 33.8 per cent.

The last quarter of 2009 saw liquidations fall by 1.7 per cent against Q3 however, which commentators attribute to businesses learning how to better cope with the recession, as well as a more tolerant attitude from the Inland Revenue.

“The flip side of this is that many businesses are accruing substantial liabilities to the Crown, which is only storing up problems for the future – it’s likely to result in a second wave of failures during the course of the year,” warns Alan Tomlinson, a partner at licensed insolvency practitioners Tomlinsons.

“The worst effects of a recession always come after a recession,” he continues. “We were flooded with enquiries from struggling businesses in the second half of 2009 and a significant percentage of these companies are now terminal.”

Of particular concern for UK plc should be the interest rate cycle.

Although the Bank of England yesterday announced that it would hold the base rate at 0.5 per cent, at some point the base rate will have to rise in order to tackle inflation, and this is likely to take many companies to breaking point.

“The general feeling amongst insolvency practitioners is that the current lull is very much the quiet before the storm, and that the number of new cases will rise dramatically post election,” adds Brian Johnson, insolvency partner at chartered accountants HW Fisher & Co.

Related articles:Why have there been so few corporate failures?Stricken company numbers on the rise

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