Tag Archive | "business insolvencies"

Certain sectors see a rise in financially distressed firms


It might come as no surprise to contractor accountants to hear that the latest Begbies Traynor Red Flag report shows a 61% increase the number of financially distressed firms in the professional services sector over the past 12 months.

15,526 firms were discovered to be experiencing significant financial difficulties in the first quarter of this year compared to 9,620 in the corresponding period of 2010.

One reason for this increase is the stale corporate deals and property market, according to Begbies Traynor executive chairman, Ric Traynor. He went on to point out that professional services firms operating with a high fixed cost base find it increasingly difficult to cope with the current market conditions as revenues have failed to recover and opportunities to further cut costs have become more limited.

It’s not only professional services firms that are struggling either. Bars and restaurants fared even worse, registering a 68% increase on the Red Flag report, whilst the amount of culture & leisure firms with significant financial problems rose by 60%.

Companies with critical financial problems that are considering insolvency will be distressed to learn that even that option is to cost more. The Insolvency Service has raised the cost of filing bankruptcy proceedings and starting compulsory liquidation.

As from the 1st of June, an individual who wants to file for bankruptcy will need to pay £525, an increase of £75, whilst the charge for a creditor petitioning for a bankruptcy order will need to pay £700 instead of the current £600. Companies entering into voluntary liquidation will need to pay £1,165, a rise of £165.

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Are contractor accountants’ clients going bust?


Administrations dropped by 24% in the final quarter of 2010 compared to Q4 the year before, according to research conducted by Baker Tilly.

London and the South East of England saw a drop in corporate insolvencies of 37%, whilst in the rest of England, the drop averaged out at 14%. However, the South West of England did not fare so well. In the fourth quarter of 2009, the region recorded 29 insolvencies, but in the corresponding period last year, the figure had increase by 31%, to 38.

RSM Tenon believes that we will see corporate insolvencies increasing this year. Carl Jackson who heads the recovery team at RSM Tenon said that the 2010 figures did not give a true picture of UK businesses because the insolvency level in 2009 was abnormally high.

He also said that this year would be difficult for businesses and the UK is now facing the serious risk of a double dip recession. Several businesses are already on a knife edge and if the Bank of England’s MPC bows to pressure and increases interest rates more businesses will fold.

Sectors such as retail and hospitality, which depend on discretionary spend, will continue to struggle due to increasing inflation and the VAT rise, he added.

The problem could be further compounded by HMRC’s tougher stance on the deferment of taxes. Last year the Revenue turned down 5.8% of Time to Pay arrangements, compared to 2.7% in 2009. The Time to Pay scheme was a lifeline for many companies who struggled during the global downturn but with the banks still not lending, if HMRC really is clamping down, the future looks bleak for firms with financial difficulties.

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680 people apply for 440 voluntary redundancies!


440 jobs are to be lost at Official Receiver offices throughout the UK, according to the Public and Commercial Services Union.

What might surprise you is that 680 people have applied to take voluntary redundancy since the cuts were announced to staff. That would suggest that at a large portion of the workforce is dissatisfied! This theory seems to be backed up by the high percentage of absenteeism last year.

There are 36 Official Receiver offices in the UK that deal with bankruptcies and company liquidations. The department expects to see a decrease in bankruptcies this year but personal insolvency experts disagree saying they will remain at record levels as the government spending cuts take effect.

The latest headcount at the Insolvency Service, taken at the end of last March, was 3,132 including agency workers and contractors.

Meanwhile, R3, the insolvency trade body, has condemned the government for not taking action against company directors who are guilty of dishonest and fraudulent activities. The number of disqualified directors has dropped by 25% in the past eight years.

R3 claims that insolvency practitioners submitted in excess of 7,000 reports to the Insolvency Service in 2010 and yet fewer than 1,400 of these resulted in a director’s disqualification. It is therefore calling on the Insolvency Service to increase its efforts to weed out dishonest company officials.

The trade body blames a lack of government resources for the service’s failings and expressed concern that more complex cases could be overlooked. Steven Law, the president of R3, said the trade body would like to help the Insolvency Service implement an effective system that ensures all cases are pursued.

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There’s been a welcome drop in small business insolvencies


The August Insolvency Index from Experian shows that the amount of businesses going under has reached its lowest point in over three years.

The Index dropped to 0.07 and the average financial strength rating increased by 0.27 to 81.06 over the last 12 months.

Contractor accountants will be particularly interested to learn that smaller businesses did very well. Their strength rating stands above the average at 82.22, an increase of 0.9 on the previous year.

The managing principal of pH, one of Experian’s companies said this shows just how quickly business fortunes can change. The present picture is very different from that of six months ago when insolvencies were increasing.

The figures also reveal that things in the North East improved. In June the region had the highest rate of insolvencies but by August the North East shared a rate of just 0.06% with six other regions.

This welcome news for SMEs is all the more surprising when you consider that the banks are still reluctant to lend to small businesses.

On a less positive note, research published on Monday showed that individuals living in towns situated on the coast were more likely to be declared insolvent than their inland counterparts in 2008 and 2009.

Last year in Hull, 51 out of every 10,000 adults were declared insolvent compared to just 20 per 10,000 in London whilst insolvency rates in Blackpool, Plymouth and Eastbourne were not far behind.

Despite more people taking staycations during the recession, coastal towns have never really recovered from the days when they were thriving fishing ports or shipbuilding centres. And a lot of people who live in these towns have to rely on seasonal or part-time employment so their income is more erratic then full-time employees.

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Credit managers predict a rise in insolvencies


Credit managers are expecting to see a rise in business insolvencies of over 10% within the next year.

Graydon UK, a commercial credit reference agency, conducted a survey which showed that 64% of credit professionals are expecting to see business failure rates in excess of 10%, and 13% of those are predicting insolvencies to exceed 20%.

Despite the prospect of increased company failures, just under 50% of the credit managers surveyed agreed that a rise in insolvencies is a price worth paying if the result leads to the future economic stability of the UK.

The MD of Graydon UK, Martin Williams, said that despite warnings from credit professionals, only a third of businesses are monitoring their clients’ public sector exposure.

The entire supply chain could be affected if a key customer or supplier, who relies heavily on government contracts, goes insolvent. HMRC has also been turning down requests under the Time to Pay scheme and 79% of credit managers say this will contribute to the rise in insolvencies.

A lot of businesses are struggling to settle other obligations and if they were expecting to defer tax liabilities they could well find themselves in serious difficulties.

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