Business failures in 2009 buck recessionary trends

LESSONS learned from previous downturns and the government’s rapid monetary policy response have helped soften the blow of the current recession to business, according to a new report.

According to research by accountants and business advisors BDO, the  total  number  of  business  failures  reached  26,165  in  2009  an  increase  of  16% on the  previous  year.

But the company’s latest ‘industry watch’ report has also shown that business failures have declined since peaking in the first quarter of 2009 – well before economic  output stabilised.

Patrick Lannagan, business restructuring partner at BDO in Manchester, said:  “The rise in insolvencies is certainly considerable and equates to 1 in 74 businesses failing in 2009. 

“However, business failures reached their peak in the first quarter of 2009 and since then we’ve seen a downward trend.

“Historically business failures are lagging indicators and continue rising well after the economy has turned.

“So we were surprised to see that business failures rose far less than expectations through this recession and indeed less sharply than during previous recessions.

“Usually there is a strong correlation between economic output and business failures but during the 08/09 recession that relationship seems to have been weakened. 

“Surprisingly, businesses have held up better than the economic decline would have suggested.”

The report highlights that between 1,600 – 2,000 corporate business failures were avoided thanks to the government’s ‘time to pay’ scheme that offers struggling businesses the chance to defer tax payments.

Additionally, between 3,600 – 4,900 business failures were prevented due to falling mortgage and interest costs which boosted disposable income and corporate profitability.

Finally, between 800 and 1,050 business failures were avoided due to the impact that the reduction in VAT had on consumer spending.

Mr Lannagan added: “The reduced rate of failures has been primarily supported by low interest rates which have preserved disposable income for individuals.

“The North West picture has been similar to the national trend with lower than expected business failures.  

“However, it should be noted that the recovery remains fragile and susceptible to future changes in Government policy and the macro economic environment.”