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Expert comments on today's Insolvency Service statistics PDF Print E-mail
Wednesday, 29 April 2015

Carl Bowles, a partner and insolvency practitioner with accountancy firm, Carter Backer Winter ("CBW") has the following to say:

"I'm surprised by the significant decrease in company insolvencies in the first quarter of this year compared to the first quarter of 2014.   A reduction in the number of corporate insolvencies by over 11 per cent year on year is notable and important.  Even more so is that company liquidations are at their lowest level since records began in 1984.  It means that corporate insolvencies in England and Wales are on an increasingly downward trend.

"There has been no crisis or key event that has led to such a marked reduction in insolvencies year on year.

"Low interest rates, banks' forbearance and arguably, the leniency of HMRC ahead of a General Election have combined to cushion struggling companies. High profile insolvencies, which in the long run may be in the best interests of creditors and the economy, are bad PR.

"A rise in interest rates, which is likely to happen towards the end of this year, will increase the costs of money, which in turn will impact on the forbearance models of the banks and the disposable income of the consumer.”

Economy:

"On the face of it, a declining number of insolvencies may appear a good thing for the economy, but many of the continuing businesses may be effectively trading while insolvent, buoyed by banks' forbearance in the form of payment holidays, interest only repayments etc., Many of these companies are dead wood: taking up market share, blocking new entrants to their markets and not investing stifling growth. They are also unlikely to be internationally competitive. Most successful advanced economies have a relatively high incidence of corporate failures.
 
"Venture capitalists and private equity companies are benefiting from the market stupor”.

Personal insolvencies:

"The low personal insolvency rates are thanks to low interest rates.  This will begin change in the autumn when I expect an interest rate rise combined with the introduction of new rules governing Debt Relief Orders.  From October the limit of allowable debts will rise to £20,000 instead of £15,000 and the minimum level of debt that can prompt a creditor to launch a petition for somebody to be made bankrupt will rise from £750 to £5,000.”

Construction industry:

"The construction industry is blighted by liquidations – this is shown in the insolvency statistics as the highest incidence of industry specific failure.  This is mainly due to the way the industry is structured.  It is common for the main contractor to sign-up sub-contractors using high turnover contracts. Subcontractors would do well to remember that turnover is vanity and profit is sanity. The main contractor has numerous legal mechanisms to avoid paying for certified work once a company is in insolvency, indeed I believe some main contractors in the industry rely upon it.

"It is time for Government to introduce some changes to the construction industry, particularly by reviewing the power of the main contractor and looking at the structure of sub-contractor contracts."

(Source - CBW Comment)
 

 

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