Insolvencies down but overall commercial debt unchanged?

The number of companies falling into insolvency has dropped by 19% according to recently released official figures by the Government’s Insolvency Service.

It was reported that some 633 companies in England and Wales were placed into administration during the third quarter (Q3) of this year which is the sixth consecutive quarterly drop and a 35% reduction year on year compared with 2009 and their peak during Q1 of last year.

Whilst it is encouraging to note that the number of business failures is dropping across all sectors some are not so optimistic.

Trade body R3 has warned that the latest insolvency figures could represent the ‘calm before the storm’.  R3 president Steven Law recently commented that usually in the aftermath of a recession insolvencies rise.

According to R3, the recent HMRC Time to Pay agreements and low interest rates have kept insolvency numbers down and that these factors will not be in place in the long term. It seems that the insolvency figures could be hiding the fact that the overall debt levels and risk of insolvency remain unchanged but that the problem has just been shifted to a point in the not too distant future?

Steven Law stated that, “One in five businesses are worried about their current debt levels and should servicing debt become more expensive, this could trigger more corporate insolvencies.

It is true that trading conditions and the overall economic outlook remain mixed across the UK economy, and with opinion divided as to the challenges ahead, one fact remains. Poor cash flow and bad debts as a result of late payments are still the biggest killer of UK business.

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