Insolvency figures reach record levels but are set to soar even higher
RESEARCH by accountants PricewaterhouseCoopers (PWC) shows that the number of corporate insolvencies in Yorkshire and North Lincolnshire increased dramatically by the end of 2008.
Although the number of business failures in quarter four only rose by 7% compared to the previous quarter, they were up 63% on the same quarter last year.
In total, 515 businesses in Yorkshire and North Lincolnshire entered into insolvency in October, November and December of 2008 compared to 482 in the previous quarter.
Steve Ellis, partner in the business recovery services practice at PWC’s Leeds office said: “A 63% increase on the same period last year shows that the lack of consumer confidence and the availability of capital is now impacting a much broader range of the economy than we have experienced to date.”
Meanwhile, a prediction by business advisory firm KPMG suggests that the number of administrations and receiverships will rise dramatically in 2009, reaching 5,000 across the UK by the end of the year.
This compares to 3,225 insolvency appointments in 2008 (to December 23) and 2,230 in 2007 – a 45% year-on-year increase in appointments.
Its analysis is based on Dow Jones Insight research into insolvency triggers for the second half of 2008 including debt restructurings, profit warnings, covenant breaches, cash flow warnings redundancy announcements or surprise resignations by senior personnel.
The study found a 79% increase in debt restructurings from quarter three to quarter four and a 64% rise in cash flow warnings.
Retail insolvency appointments to the end of January 2009 were up 300%, compared with the same period in 2008, proving the vastly different trading landscape for retailers.
Mark Firmin, a partner in KPMG’s Leeds restructuring practice said: “The downturn is now firmly entrenched, hitting nearly all sectors.
“Confidence is a key driver behind consumers’ and business’ willingness to spend money, and right now confidence is at a low ebb.”
He added: “A number of companies and their stakeholders are trying hard to restructure their businesses, but given the speed of the downturn it is inevitable that some will run out of cash.”
Mr Firmin said that the increase in announced debt restructuring was only the visible tip of the covenant breach iceberg.
He warned that a “very significant” number of companies will be forced to renegotiate or restructure their facilities – a process that is neither going to be quick or easy.
“The most common cause of business collapse is simply running out of cash,” he continued.
“Waiting until cash becomes the critical issue is a sure-fire way of destroying the confidence of lenders. Looking ahead, we believe the sectors with the most to lise in the months to come include travel and leisure, chemicals and industrials, including automotive, energy and natural resources.”
