Unpleasant reading ...

10th November 2008

Last Friday the Insolvency Service issued the insolvency statistics for the third quarter of 2008 – they do not make very pleasant reading.

As has been widely predicted there has been a dramatic rise in business insolvencies in the period. Liquidations increased by 10.5% over the previous quarter, and 26.3% over the same quarter last year to stand at 4,001. The movements in Administrations, 50.7% up on last year, Receiverships 237.5% up and Company Voluntary Arrangements (“CVA”) 29.5% also all tell their story. These last three mechanisms are often seen as potential recovery or rescue methods (particularly CVA’s and sometimes Administrations, much less so Receiverships) so there may be some hope that these figures indicate that at least some businesses are being saved.

However, the reality is that these statistics are probably just the thin edge of the problem ..and we will continue to see further dramatic rises in the quarters ahead.

Let us not also forget the huge rises in personal insolvencies that have been seen in the past couple of years (Bankruptcies and Individual Voluntary Arrangements), which are again predicted to reach new record levels this year. This position could become much worse if small business start failing at an increasing rate as this will then lead to increased unemployment and the consequences on personal finances.

Over 95% of all UK businesses employ 10 or less people … and it is those very businesses which are now increasingly vulnerable.

Not only are there very many fragile businesses which will easily fall, there are also many business leaders who have never operated their businesses through a downturn – let alone one that is likely to be as dramatic as this one. Many are fair weather sailors. They need to quickly learn new skills and run their businesses quite differently in the months ahead if they are not going to become one of next years insolvency statistics!

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