• Company liquidations at their lowest level since the beginning of the recession
• Measures such as Time to Pay and a lack of available credit helping to keep insolvencies at artificially low levels
London, September 27, 2010: The Graydon Insolvency Predictor, based on data from commercial credit reference agency, Graydon UK published today, suggests that the official number of UK company failures will fall further during the third quarter of 2010 - down by 5.7 per cent in comparison to the second quarter of this year. The data reveals the number of corporate insolvencies is likely to fall by six per cent compared to Q3 2009.
This is in contrast to the trends witnessed in previous recessions, most notably that of the early 1990’s, where the rate of insolvencies continued to climb even after economic recovery.
However, the Graydon Insolvency Predictor also indicates that UK liquidations in Q3 2010 are expected to be 12.5 per cent higher than in Q3 of 2008, at the start of the financial crisis.
According to Graydon UK’s Martin Williams, these trends highlight the reason why insolvency statistics should not be used as a key barometer to measure the real depth of this economic recession. The HMRC Time to Pay (TTP) scheme is one reason for striking this cautionary note, allowing businesses to defer their tax payments to improve their cash flow.
Martin Williams, Managing Director of credit risk management experts, Graydon UK, commented: “The Time to Pay scheme, historically low interest rates and the cutback in bank lending to businesses have combined to make this a unique recession. This makes the level of corporate insolvencies in a given quarter a potentially misleading economic barometer when looked at in isolation.”
“HMRC is currently supporting some estimated 80,000 companies that under normal circumstances may well have collapsed. Compare this with the 19,000 companies that failed during the whole of 2009 at the very height of the credit crunch, and we begin to see just how bad the rate of company failures could have become without government intervention.”
Martin Williams points out that a lack of available funding for businesses has meant that many UK companies are simply not able to borrow money from their banks, so they are at a far lower risk of becoming too highly geared and therefore financially vulnerable. Conversely, those organisations lucky enough to have obtained bank financing during the downturn have been able to meet their existing repayment obligations with the minimum of hardship due to the historically low rates of interest.
However HMRC now appears to be adopting more of a hardline approach to companies seeking to defer their tax payments. This could result in less support for businesses adding to the number of UK liquidations.
Martin Williams further commented: “In addition, banks are also reluctant to put their clients into receivership because they are fearful of further backlash from the government and the public, particularly when the fall in asset values, in particular in commercial real estate, means that the banks may not recover the money owed to them in full anyway.”
According to the Graydon Insolvency Predictor, insolvencies are expected to rise again in early 2011 as the impact of public spending cuts begins to take effect, leading to a possible ‘double dip’ recession, and a potential rise in VAT as a post-Christmas slump hits consumer demand.
Martin Williams said: “A fall in corporate failures this quarter should not be taken as reassurance that we are now out of the woods. Businesses are likely to come under further pressure in the coming months and may not be able to rely as heavily on government support measures like Time to Pay to help them weather the storm.”
For further information contact:
Jane Lougher / Oliver Levy
Weber Shandwick Financial
Phone: 020 7067 0745/ 0207 067 0734
Email: firstname.lastname@example.org / email@example.com
Graydon UK Limited
Phone: 020 8515 1400
About Graydon UK:
Graydon UK is one of the leading database information providers specialising in credit risk management and risk assessed marketing lists. The company helps clients reduce the uncertainty of doing business by providing a complete, differentiated and high-quality package of credit risk management services. Graydon provides access to credit information and reports on companies in more than 190 countries worldwide. The Graydon group is owned by Atradius, Coface and Euler Hermes, three of Europe's leading credit insurance organisation.
In 2008, Graydon UK Managing Director Martin Williams was invited by Philip King, Director General of the Institute of Credit Management (ICM), to join the ICM think tank (an expert panel of 20-25 industry leaders who meet quarterly and act as an influencing force on all issues related to the credit industry in the UK.).That same year, Martin Williams was honoured by Credit Today, after being included on their Credit 100 list of people who have had the greatest impact in the credit industry during 2008 and 2009.
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