The True Picture Hidden as Personal and Corporate Insolvencies Fall

As per the government statistics, corporate and personal insolvencies went down in the last three months towards the year end. The profession has given a warning nevertheless on how the figures do not show the economy’s true position. According to today’s service of insolvency, the corporate insolvency and company liquidations procedures went down by 7.4 % in the last quarter of the year 2013 as compared to the previous one. On the same note, for the year 2012, this was a 7.1 % decline.

These numbers though fail to reflect the correct picture of the financial health in the UK as per the restructuring head known as Graham Bushby noticed. The latest research from Bank of England says that 14 % of the financial institutions such as banks that are lending to the SME’s is done through tolerance be it in the form of payment holidays, long term extensions or even deals of transfers to interest. Therefore, there is a significant distress degree that some businesses are still feeling in spite of the downward turn of the economy.

The recent figures also reflect a 10.7 % rise of administrations. This is compared to a 14.5% receiverships decline in the same period of time arrangements of company voluntary that went down by 18.5 % as compared to the last quarter of year 2012. The decrease in company administrations indicates that banks are supporting zombie organizations in the hope of achieving higher returns by keeping the company going. Nevertheless, this is on the other hand putting liquidity to a halt for those businesses considered viable, notes Melanie Giles. By failing to call upon their debts, the banks’ liquidity is tied up and hence deprives other organizations of the required capital needed for growth. By undercapitalization, it is not the zombies that will rot but tomorrow’s companies.

Ian Gould is a BDO restructuring partner who felt that figures were not showing the true business climate reflection. Most law firms have gone on to struggle in securing the insurance of professional indemnity and also face closure. The difficulties in getting professional indemnity has made over a hundred organizations to sink after struggling financially.