Insolvencies affecting larger businesses have fallen by 7.6% in 2012 compared to 2011 but wholesale and retail sectors have recorded a rise in corporate failures, according to the latest set of figures from the Insolvency Service for England and Wales.
Receiverships (1,222), CVAs (839) and administrations (2,532), all forms of insolvency which typically involve medium/larger businesses and consequently relate to larger debt levels and the greater potential loss of jobs, revealed between 2011 and 2012 the sectors suffering the largest increase in insolvencies were the financial intermediation sector (+37% to 70 – so from a comparatively low base) and wholesale and retail (+4% to 539).
For 2012 as a whole, the real estate sector saw the biggest fall in larger company insolvencies, down 26% to 1,508, followed by hotels and restaurants, down 23% to 216, and manufacturing down 13% to 480. Total company insolvencies comprising compulsory liquidations and creditors voluntary liquidations, which typically involve smaller businesses and sole traders, have decreased by 4.4% (16,138) over the same period.
Ryan Beckwith, a restructuring & insolvency partner at global law firm, Freshfields Bruckhaus Deringer, said: “Despite rolling towards what some are predicting will become a triple dip recession, the UK is enjoying lower levels of corporate casualties than last year. While positive on first reading this ignores the impact of swathes of businesses, commonly referred to as “zombie” companies, effectively being kept on life support by certain stakeholders.
“The UK economy contracted by 0.3% in the last quarter of 2012 and consumer spending remains relatively flat, highlighting the country’s slow progress towards economic recovery. Zombies are potentially hampering that recovery by tying up capital and resources and acting as a dead weight on the economy.
“It’s not surprising there has been a rise in the retail sector, given the spate of high-profile corporate fatalities over the last 12 months with the likes of Comet, Jessops, JJB, Clinton Cards, Peacocks, Game Group and now HMV finally exhausting their ability to run on empty. As the sector undergoes a structural shift with consumer spending moving increasingly online, certain retailers that have failed to adapt to these changing dynamics and which remain saddled with large store portfolios are being allowed by their stakeholders to fail.
“Without downplaying the negative and painful economic and social repercussions of insolvencies, there are some positives to be taken. More successful companies will be able to expand into vacated units, potentially hire staff working at those units and absorb any other commercially viable parts of zombie businesses. As an example, HMV, like many other retailers going through insolvency proceedings, appears to be edging towards survival in some form or another; most likely as a slimmed down entity with a leaner business model.
“Perhaps counter intuitively, the rise of corporate mortality rates in the retail sector could be seen positively and indicate, unlike in recent years, that banks and other stakeholders are feeling increasingly confident that they have sufficient capital to absorb substantial losses and subsequently extend necessary credit to more viable businesses.
“Recent successful restructurings carried out using sophisticated insolvency techniques such as CVAs and debt-for-equity swaps provides cause for further optimism that banks, funds and other providers of capital can work together with other stakeholders such as landlords and suppliers to save viable businesses, preserving value and safeguarding jobs while contributing to future economic recovery.”