Insolvency experts warn of rise in business failures in 2010

20 10 2009 United Kingdom

The number of companies experiencing serious financial problems has fallen in the third quarter, says corporate recovery firm Begbies Traynor.

But they support the view of many economists that the UK is currently in a 'W' shaped recession and insolvencies will rise next year.

134,000 businesses showed ‘material signs of distress’ in the third quarter of 2009, according to the latest ‘Red Flag’ report by Begbies Traynor, the business rescue and restructuring firm. But the peaks in unemployment and insolvency remain some way off, says the report.

Ric Traynor, executive chairman of Begbies Traynor, said that there is support for the view of many leading economists that the UK is currently at the midpoint of a 'W' shaped recession, with a deluge of business failures likely in 2010.

"There is every reason to suggest that the unemployment and insolvency peaks of this recession remain some way off,” he said. “Experience of the last four recessions tells us that unemployment levels and corporate and personal insolvencies are lagging indicators, and thus seem certain to rise in 2010."

"Both banks and trade creditors are also holding off wherever possible in the hope that business fortunes may improve,” he added. "The well-intentioned Government efforts to prop up struggling companies may provide a necessary lifeline in the short-term but will ultimately prove futile in many cases."

More than 215,000 businesses have deferred payment of £3.79bn in tax liabilities under the Business Payment Support Service available through HM Revenue & Customs.

A spokesperson for Begbies Traynor told the BBC’s Today programme that enterprises faced a shortage of working capital as the recovery kicks in, orders pick up and business expands. Insufficient lending capacity in the banking industry will make many businesses vulnerable.

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