Insolvency lag anticipated amid weak return to growth

Following six consecutive quarters of contraction, Britain may finally have emerged from recession, but company collapses could be yet to reach record levels. That's according to insolvency body R3, which also predicts that the number of firms going into administration will remain high as 2011 beckons.

Today's figures from the Office for National Statistics, which show that the UK economy grew by 0.1 per cent in the last three months of 2009, could therefore be no more than a "false dawn" for many businesses. Since the recession began in 2008, Britain's GDP has contracted by six per cent.

"The country went into recession sharply but will come out of it through a long, slow drag," Peter Sargent, chairman of R3, remarked to the Financial Times.

Out of 1,700 insolvency practitioners polled by the body, the majority anticipate that company insolvencies will peak at 28,000 this year, compared with 22,800 in 2009. They believe failures will ease off moderately moving towards 2011, reaching a total of around 27,000.

"The banks will tell debtors . . . it is time to perform or return the money," Sargent said of the likely reasons behind a post-recession spike.

R3 predicts that a return to growth will put pressure on lenders to move their financing focus from depressed firms to start-ups and lightly geared companies with more optimistic prospects.

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