Surprise increase in corporate liquidations – SMEs at risk

There has been a surprise increase in the number of corporate liquidations.

It comes at a time when overall corporate insolvency rates are falling.

Figures from the Insolvency Service show there were 3,017 creditors’ voluntary liquidations in the second quarter of this year, a rise of 17.3% compared with the first quarter. The number of compulsory liquidations fell by 6.6% to 961. Taken together, the numbers represent a rise in corporate liquidations of 10.5%.

On a more positive note, there’s been a 39% fall in the number of firms in critical distress over the last year, according to researchers.

The Red Flag Alert, compiled by accountancy firm Begbies Traynor, said the figure dropped from 4,947 in the second quarter of 2012 to 3,001 in the second quarter of this year. It’s the second highest year-on-year decrease since the beginning of 2011.

Begbies say it indicates a significant turnaround in the health of the UK economy.

However, the researchers say many SMEs remain chronically under-funded. They are the ones at greatest risk of failure as the economy recovers.

Julie Palmer, Partner at Begbies Traynor, said: “With critical distress levels falling at a record pace, this quarter’s improvement appears to be the first real sign that the UK economy has turned a corner towards a sustained recovery.

“However we have real fears that many SMEs will have serious financial difficulties at the time they least expect – during a recovery. Our experience has shown time and time again that many SMEs run out of cash during the recovery phase, as there is a real temptation to overtrade.”

The uncertain economic climate highlights the need for businesses to keep a tight rein on credit control and late payments from their customers. Early action can help recover debts that might otherwise go unpaid and put your firm’s survival at risk.

Please contact Chris Jolly in our Westbury office on 01373 865577, email cjolly@mulaw.co.uk  if you would like more information about the issues raised in this article or any matter relating to credit control and debt collection.