Second wave warning on insolvencies - PwC
Oct 27 2009 by Anna Blackaby, Birmingham Post
The number of West Midland firms becoming insolvent dipped slightly in the last quarter but experts are warning of a second wave of companies getting into trouble as the economy picks up again.
The three months to the end of September saw 565 corporate insolvencies in the region compared with 597 in the previous quarter – representing a 5.4 per cent reduction – according to the latest analysis by PricewaterhouseCoopers LLP.
Nationally, the figures show 4,624 companies became insolvent in the three months to the end of September 2009 – a fall of six per cent compared with the previous quarter. But, despite the positive developments locally and nationally, PwC’s business recovery experts believe insolvencies could climb again before the recession is over.
Rob Hunt, partner in the business recovery services practice at PricewaterhouseCoopers LLP in the Midlands, pointed to the dangers to firms who are caught unprepared by an economic upturn.
He said: “We could at last be seeing a tail-off in the number of insolvencies brought about by this recession.
“This is positive news for businesses in the region, many of which continue to work hard to maintain their market position.
“However, the reduction is small and when we compare the number of corporate insolvencies in the West Midlands during the first three quarters of 2008 to the first three quarters of this year, there has been an increase of 52.4 per cent.
“This indicates how deeply the region has been affected by the recession,” he added.
“We also need to bear in mind that corporate insolvencies typically spike again at the start of an economic upturn – mainly because businesses take their eye off the ball in terms of cash management and hence struggle to finance anticipated growth.
“Companies in the region should continue to expect challenging trading conditions in the months to come.”
PwC’s corporate insolvency figures, which are based on administration, administrative receivership, company voluntary arrangements and creditors’ voluntary liquidation appointments, come hot on the heels of another bleak survey.
Last week insolvency firm Begbies Traynor warned that 134,000 businesses nationally still showed “material signs of distress” as falling GDP continued to hit.
Researchers for Begbies also cautioned about reading too much into a positive trend in corporate insolvencies last quarter.
Begbies said that there was evidence the UK could be at the mid-point of a W-shaped recession, drawing comparisons with the 1980s downturn in which business confidence picked up briefly before heading downwards again in 1982.
It warned unemployment and insolvency peaks of this recession remained “some way off,” pointing to statistics from recessions over the past 40 years showing insolvencies peak between one and two years after gross domestic product starts shrinking.
