Business

Company insolvencies at five-year low

  • 2 November 2012
  • From the section Business
Comet store
Image caption Comet announced on Thursday that it would go into administration next week

The number of companies going bust in England and Wales has dropped to its lowest level since the end of 2007.

Figures from the Insolvency Service show that 986 firms went into administration, receivership or a company voluntary arrangement in the third quarter of this year.

That was a 25% drop on the previous quarter.

However, personal insolvencies rose slightly, to 28,062, though that was still fewer than a year ago.

Although personal insolvencies increased by 2% from the second quarter of the year, the total was 7.2% lower than year earlier.

'Zombie' businesses

Lee Manning, of R3, the trade body for insolvency experts, said the drop in corporate insolvencies probably reflected the recent revival in the economy, which grew by 1% in the third quarter of the year.

"Whilst this decrease in corporate insolvencies is to be welcomed, there are many other businesses stagnating - being kept alive by the forbearance of banks, rather than being shut down as they would have been during previous recessions," he said.

"Our research shows 146,000 businesses are in fact 'zombies', whereby at best they are able to pay the interest on their debts but not reduce the debt itself.

"Some of these businesses have been 'running on empty' for quite some time now, and with no reserves left in the tank, they may not be able to carry on for much longer," Mr Manning warned.

Cost barrier

The number of individuals going bust has been on a steady downward trend since the start of 2010.

In that time, the number of bankruptcies has halved, individual voluntary arrangements have been steady, and there has been a surge in the use of the relatively new insolvency procedure known as the debt relief order.

Joanna Elson, chief executive of the Money Advice Trust, said: "There are now more people taking out debt relief orders than there are becoming bankrupt."

"Our experience tells us that the falling bankruptcy figures are not a result of improved household finances, but rather of the increased cost of going bankrupt.

"People struggling with debt often simply can't afford the £700 it costs to go bankrupt, even though that would otherwise be their best option," she said.

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