It will be apparent from the graph below that the financial crash of 2008, and the subsequent recession, led to a spike in companies entering an insolvency procedure in the second quarter of 2008, with a downward trend since mid 2011.
Although the number of companies entering creditors voluntary liquidation remains higher that the pre crash trend, the number of companies being incorporated has been on a consistently rising trend, so the percentage of active companies failing is reducing.
Forecasters are not anticipating any significant change towards an upward trend in company insolvencies, although a fear has been muted that a bank base rate rise may trigger an increase insolvencies.
Our view is that particularly in relation to SME borrowing, there is a large enough margin buffer in current lending that would be absorbed initially by the lenders, without a significant cost increase to the borrowers, thereby smoothing the consequences of any rate rises.
In our opinion, the withdrawal of ‘forbearance’, by banks and trade suppliers and upward salary demands coupled with low productivity, is more likely to be a greater threat to underperforming businesses.
One of the key lessons for SME business over the last six years has been how to operate on a ‘consensual’ basis with regard to credit and funding, leading to less hostility and ‘we are all in it together’ attitude.
Once the banks release their purse strings and with more alternative funding becoming available, there is a risk the pendulum will swing too far and more easily available increased borrowing will cover up underperformance.
Whatever the state of the economy, sound financial management remains key to long term viability.
Company insolvency in England and Wales
Key findings this quarter
Creditors’ voluntary liquidations continued to decrease
|The number of companies entering creditors’ voluntary liquidation decreased for the fourth consecutive quarter, and in Q2 2014 was 18.1% lower than in the same quarter a year earlier, and the lowest since Q1 2008.|
Compulsory liquidations remained at trend
|The number of companies subject to a compulsory winding-up order also decreased, but remained in line with a fairly stable trend seen since mid-2012 (with Q4 2013 being an exception to this).|
Other types of
company insolvency continued to
|The number of companies entering administration decreased for the fourth consecutive quarter, and was 34.9% lower in Q2 2014 than the same period a year earlier. This was the lowest quarterly figure since Q1 2005. Company voluntary arrangements and receiverships also decreased.|
|The liquidation rate was at its lowest level||The liquidation rate in the 12 months ending Q2 2014 was at its lowest level since data has been available to calculate the rate.|