Recent figures have shown that 30% fewer companies are going into liquidation during the current economic downturn compared with the last recession in the early 1990s. Research carried out by the insolvency trade body R3 has suggested that the lower failure rate is due, at least in part, to the rescue culture that has been created following the passing of the Enterprise Act in 2002. R3 believes that the Act has encouraged rescue and recovery over liquidation and closure and that this has helped preserve more businesses that would otherwise have failed in earlier recessions.
There were 16,886 company liquidations in England and Wales during 2011 which is nearly 8,000 fewer than the peak of the last recession in 1992 when 24,425 businesses were put into liquidation. This is despite the current recession being deeper and lasting longer than in previous decades.
Paul Moorhead of Rotherham-based insolvency practice Moorhead Savage commented on the figures: “Many people had expected there to be a massive number of companies going bust in the current economic climate but the figures show that the vast majority of businesses are managing to cope with the current economic downturn. The number of companies going bust is around 0.7% of active companies, which is desperately sad and painful for those affected but thankfully the overall level of failure is low. I am hearing a wide range of views expressed about the current state of the economy, ranging from ‘just scraping through’ to ‘best year ever’.
“There is no doubt that many businesses are having a hard time, but banks and HM Revenue and Customs are being relatively benign in dealing with over-indebted businesses. The good news is that business owners can benefit from the rescue culture, if they need to restructure their businesses or if they need to rescue their company from going bust. Help is available where there is a clear need to deal with crippling levels of debt.”
Paul and the Moorhead Savage team can be contacted on 01709 331300 or by email to email@example.com