Lenders prefer debt deals to insolvency, says Begbies
MID-market inactivity and low property prices are causing a shift away from formal insolvency proceedings, according to accountancy firm Begbies Traynor.
The firm said it has seen pre-pack administrations and bankruptcy proceedings become less popular as lenders prefer to seek debt repayment deals through voluntary arrangements rather than take possession of assets that are difficult to liquidate.
According to figures from the Insolvency Service, voluntary arrangements increased by 33% in 2010. This was up by 130% on 2007’s figures.
Manchester partner Gary Lee said: “Voluntary arrangements are becoming increasingly popular as secured creditors grow more reluctant to bring formal insolvency proceedings against struggling businesses for two main reasons; concerns about public perception and a lack of available equity in assets.
“The attitude that ‘something is better than nothing’ prevails as creditors accept voluntary arrangements which at least pay some of the debts owed to them. Compared with winding up a business and pursuing potentially costly formal proceedings, it isn’t such a bad route to go down.”
He said the rise in informal debt management plans to deal with individual insolvency is being mimicked by companies.
According to Begbies’ first quarter Red Flag Alert report, the number of companies in financial distress – defined as having insolvent accounts, a court action against them or a winding-up petition – rose by 26% on the last three months of 2010.
