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Posted on 03 May, 2011

Number of business insolvencies in decline

The rate of company failures has continued to slow in the fourth quarter of 2010, however it could rise next year, a new report has suggested.

Research found that the rate of business failures for Q4 was down 3.2% on Q3, based on data from commercial credit reference agency Graydon UK. By the end of 2010, the number of corporate insolvencies will have fallen by over a tenth (11.3%) compared to the Q4 of 2009, however these will be up by 2% on the number of company failures recorded in Q4 of 2008, during the initial phase of the recession.

According to the credit agency, government support measures such as HM Revenues & Customs’ (HMRC) Time To Pay scheme, low interest rates and the reluctance of banks to call in their loans has continued to stem the flow of corporate insolvencies. Martin Williams, managing director of Graydon UK said:

“Reality will really begin to bite as the government continues to withdraw support measures for cash-strapped businesses. Recent reports that HMRC is encouraging businesses to use their credit cards to pay tax bills, rather than use the Time to Pay scheme, is the clearest signal yet that HMRC is scaling down the programme.”

However, Graydon has warned that the gradual withdrawal of government support, which currently allows businesses to deter their tax payments to improve their cashflow, is likely to contribute to an acceleration in the number of company failures in 2011.

Williams added: “Struggling businesses have been offered some respite this year, helped by the Time to Pay scheme and banks’ reluctance to wind up companies at a time when asset values are low and public opinion is largely against them.

“This is all set to change as public spending cuts take effect and while it will take time for the pain caused by the government’s austerity measures to feed through to businesses, we can expect to see an upsurge in the number of company failures mid-way through 2011.”