Company liquidations up 14.6 percent

 

A record number of people in England and Wales succumbed to bad debts in the third quarter of this year but the pace at which companies went bust slowed, official figures showed on Friday.

The Insolvency Service said company liquidations rose 14.6 percent on a year ago to 4,716 in the three months to September, after jumping nearly 40 percent in the second quarter.

Personal insolvencies rose 28.2 percent on a year ago to 35,242, the highest since records began in 1960, and analysts said worse was still to come.

"Individual insolvencies will continue to rise for some time to come, despite current mounting signs that the economy will finally return to growth in the fourth quarter" said Howard Archer, economist at IHS Global Insight.

"Unemployment has already risen substantially and is likely to climb significantly further, many people are suffering wage freezes or even cuts, debt levels have risen and credit conditions remain very tight."

While the rate of company insolvencies slowed, the numbers remained high. Analysts predicted the easing would be temporary, with failures expected to rise further in 2010 as measures taken to stimulate the economy are gradually wound down.

Several famous companies have succumbed to Britain's worst recession in decades and many others are fighting for survival. In October the owner of national off-licence chain Threshers, First Quench Retailing, filed for administration.

Last month restructuring specialist Begbies Traynor said 134,000 companies had shown signs of distress in the third quarter and that the worst is yet to come for corporate insolvencies. 

Many smaller companies are still struggling to get hold of credit despite an unprecedented level of economic and banking support measures from the government and Bank of England.

"The fall that we would normally expect to see in the number of business failures over the summer months simply hasn't happened" said Carl Jackson, head of recovery firm Tenon Recovery.

"Low interest rates, the temporary reduction in Value Added Tax, low inflation... have given firms some breathing room, but there is a feeling that these initiatives are simply delaying inevitable failure" he added. "Once withdrawn, there will be a flurry of failures."

The Bank of England increased its asset purchase programme - meant to encourage Britain's fragile banking sector to lend more - by 25 billion pounds to 200 billion pounds on Thursday, but slowed the pace at which it plans to buy gilts, fuelling the conviction the scheme was coming to an end.