Hurrah! Insolvency rate falls despite double-dip recession

The UK’s insolvency rate has fallen despite the country being locked in its longest double-dip recession for 60 years, a report has found.

Experian’s Business Insolvency Index found that the number of insolvencies had fallen by 9.5% in July compared to the same month last year. A total of 1,776 companies went bust last month, against 1,962 in the same month in 2011.

Businesses in Scotland have managed to stay afloat particularly well. Scotland’s insolvency rate is now at its lowest point in two years after a 25.3% drop in the number of businesses going to the wall since last July.

The non-food retail sector showed the biggest improvements of all types of businesses across the UK, with the rate of insolvencies falling by 0.1% in July from 0.2% last year.

The car market was the hardest hit by the recession as insolvencies went up by 41.7%.

Failure rates were highest among the largest firms which employ in excess of 500 people and the smallest companies with between 11 and 25 employees, the figures show.

Experian managing director of business information services Max Firth said: “Since March this year, when the insolvency rate peaked at 0.11%, it has remained fairly stable – between 0.08% and 0.09%.

“The lack of any real increase is clearly welcome and this picture is unlikely to change in the near future.”

The fall in insolvencies is believed to be partly due to the increase in the use of rescue deals known as company voluntary arrangements (CVAs). The deals allow businesses to avoid going into administration by asking lenders and creditors, including landlords, to renegotiate their debts.

A study from accountancy firm Wilkins Kennedy found the number of CVAs went up 10% in the year to the end of June to reach 769.

Last week, budget hotel operator Travelodge became the latest firm to launch a CVA. It announced a deal to walk away from 49 loss-making hotels and write off £700m of its debts.

The British Property Federation called for the CVA system to be reviewed because it can leave landlords out of pocket.

Image: Ben.Millett