Given the state of the British economy and the difficult business climate, you might have expected insolvency practitioners to be rushed off their feet. In fact, the level of business insolvencies, both company insolvency and for individuals, has been remarkably low.
So an article in a recent edition of The Economist makes especially interesting reading. Research quoted there shows an increasing number of businesses incurring losses. Of course, even the best of businesses run at a loss from time to time particularly, for example, when a new product or service line is being developed or a major restructuring is taking place. There’s no problem with taking high costs in the short term for big profits in the long term.
The research quoted in The Economist, though, shows that for some companies losses are becoming something of a habit, and the number of quoted companies issuing profit warnings is on the up. Many businesses – “zombie companies” – are only being kept alive thanks to the forbearance of their banks and, to some extent, a fairly relaxed approach by HMRC. Low-interest rates are keeping some businesses on life support. But an economy in which firms can only operate at rock-bottom interest rates is clearly a pretty brittle one.
The prevalence of weak businesses means that a pick-up in the company insolvency rate is more than just a distinct possibility. More failures would not only create higher unemployment, it could also cause more problems for the banks; loans are often secured against equipment or machinery which has little resale value, leading to losses and further provisions.
So it’s very much a case of “watch this space”. A business insolvency boom may yet happen. Meanwhile, businesses which are struggling ought to be advised to take advice about their position. Where corporate recovery advice is taken early enough, it is often possible to salvage something from what might otherwise be a lost cause.
An initial meeting with an experienced member of our corporate recovery Team will always be without obligation so contact us now.