Linklaters says that the rise in UK insolvencies seen in the last quarter of 2011 is the latest indication that many businesses are struggling in a turbulent economic environment.
“The Insolvency Service figures published today show a continued increase in overall corporate insolvency filings. With the most recent GDP data showing a fall of 0.2% for Q4 2011 and consumer confidence remaining low, the outlook for the UK economy looks challenging,” says Tony Bugg, Global Head of Linklaters’ Restructuring and Insolvency Group.
Liquidations were up 7.2% to 4,260 in the period October to December 2011 compared to the same period a year ago. Most significantly, there were 1,389 compulsory liquidations, representing a 14.1% leap on the previous quarter (Q3 2011). Additionally, administrations (658), receiverships (324) and company voluntary arrangements (191) made up another 1,173 corporate insolvencies in Q4 2011, representing an increase of 5.3% on the same period a year ago.
Tony Bugg says:
“What businesses fear is reduced demand coupled with creditor pressure. When compared to the first three quarters of 2011, the last quarter saw a dramatic fall in the volume of leveraged refinancings and today’s insolvency statistics may provide evidence of a reduced appetite of creditors to continue supporting distressed corporates. We will need to pay careful attention to this and the next quarter’s insolvency statistics to get a better picture, but the state of the economy in general will continue to expose those enterprises currently in difficulty. It’s important to remember that many lenders are under pressure themselves. The apparent reluctance of some to crystallise their losses may cease to be sustainable and we may therefore see a continuing increase in corporate insolvencies in 2012.”
Aedamar Comiskey, partner and head of the Retail Sector Group at Linklaters says:
“The Christmas period has been mixed for many retailers – while sale volumes may have been up, this was often at the expense of profitability due to discounting and cautious retail trade buying for big ticket items. We saw a number of large retailers file for administration – Peacocks, Barratts Priceless and La Senza among them – as well as a significant increase in profit warnings. The retail sector is likely to contract further this year if consumers continue to face squeezes in real income, although interest rates look likely to remain low for the foreseeable future.”
Tony Bugg says:
“The insolvency figures support the view that the UK may enter into a double dip recession. Irrespective of how long it lasts, the economy will be in serious difficulty for a significant period of time. UK businesses are having to negotiate a slalom course at the moment, with subdued lending levels and a fragile Eurozone forming major obstacles to any recovery. Not only that, but there is an avalanche of debt fast approaching from behind which will need to be refinanced over the next couple of years.”
For further information please contact Katie Taylor on +44 20 7456 2287.
