Mixed picture on company failures as economy continues to stutter

July 18, 2011

The number of businesses going bust in the South West dropped from 241 to 196 in the second quarter of 2011 – a decline of 19%, according to analysis by business advisory firm PwC.  But when compared with the second quarter of last year, the level of insolvencies was up by 24%.

Rob Lewis, partner in the business recovery services practice at PwC, said: "The declining levels of corporate failure this year should not lead to complacency as the overall picture is worse than this time last year. The UK economy is by no means out of the woods yet as we continue to see retailers running into financial difficulties and shutting up shop/closing their doors. 
"The impact of the Government’s public sector spending cuts, which have yet to be fully felt, are likely to have a further adverse effect on consumer spending and especially on those companies supplying the public sector."
He added: "The trend of falling corporate insolvency levels during the recent recession has been rather atypical but this is partly due to a combination of factors which have provided breathing space for many struggling businesses. Persistently low interest rates, increased time to pay agreements by HMRC, and a supportive attitude from secured lenders anxious to avoid the potential crystallisation of losses on their balance sheet, have all helped.
“The main short-term challenge is low consumer confidence, but the greater long-term challenge is the wall of debt that needs refinancing over the next few years.”
In the retail and hospitality and leisure sectors he said the quarterly rent due date on the June 24 will not have helped the fortunes of companies with multiple premises. Although nationally the overall numbers were down on the previous quarter, with 375 retail companies and 255 hospitality and leisure companies entering insolvency, year-on-year they actually saw 9% and 10% increases respectively. It is also clear, he said, that it's the larger retailers who are suffering. When looking at retailers with assets of over £1m, there were 41 entering insolvency in the last quarter, more than three times the amount in the first quarter of 2011 and nearly seven times more than in the same quarter last year.
Construction also had a difficult quarter in comparison to this time last year with 584 companies entering insolvency in the quarter. PwC's economic team announced this week that house prices in the UK are unlikely to recover until 2020, this will obviously have a knock-on effect on some housebuilders, despite the demand for new houses in the UK. 
However, the pressure is not just being felt among housebuilders and, unlike periods of previous housing property difficulties, DIY spending appears to have also fallen. According to recent research by Lloyds TSB, DIY total spending has fallen to its lowest level since 1998. This links to the increase in insolvencies in home improvement where both Moben Kitchens and Focus DIY are amongst recent corporate casualties. 

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