NEWS

Ailing businesses get a reality check

Businesses that had been kept alive "artificially" thanks to the availability of cheap and easy credit are behind the increase in rising insolvency figures, according to the trade body for insolvency practitioners.

R3, which represents 97pc of the country's insolvency practitioners, added that the recent "worse than expected" figures would get worse, and it would be some time before the numbers of insolvencies peaked.

As well as a spike in the number of insolvencies, there has been a dramatic growth in the number of receiverships, too.

Last week the Insolvency Service announced a 53pc increase in receiverships, and R3 said the jump from 177 in the second quarter to 270 in the third quarter was largely due to a jump in the repossession of commercial property.

"Companies owning property are being squeezed by a reduction in prices and a shortage of buyers," said R3 East Anglian council member Chris Williams, of Norwich-based McTear Williams & Wood.

"A bank trying to recover its debt may appoint a receiver over just the property, but this shows up in the statistics as a company receivership.

"We have all known for some time that the property and construction sector has been badly hit by the downturn, and these figures are evidence of that. It is likely that this trend will continue and will provide opportunities for investors dipping their toes back into the property market."

The Insolvency Service figures indicate that the number of corporate insolvencies for the first three quarters of this year has risen to 15,164.

R3 East Anglia expects this trend to continue into next year, with about 18,440 company insolvencies. That would translate as a 41pc increase in business insolvencies from 2007.

"The figures are worse than we expected," Mr Williams said.

"In the past there has always been a lag in filtering through to insolvencies and it will be some time before insolvency numbers peak, and if the past is anything to go by the FTSE will be well on its way upwards by then."

He added: "For the past three or four years, a number of businesses that perhaps were not performing well have been kept alive artificially by the easy availability of credit, which has now dried up.

"Businesses which are more vulnerable will fail. The key to survival in these testing times is financial discipline and recognising the signals and taking advice before the problems snowball. Well-managed businesses with strong cash flows can certainly survive, and even prosper in the current climate. Cash is king in these turbulent times."