The latest corporate insolvency figures from credit agency Experian show that the number of UK companies entering administration has reached its highest level since the firm began monitoring it in 1997.
Furthermore, insolvency practitioners have noticed that the vast majority of these are now occurring in the SME sector, with large scale collapses such as that of MG Rover in 2005 becoming increasingly rare.
The final quarter of 2006 was particularly bad for business failure, and saw a surge of companies filing for administration, more than double the number that had done so during the equivalent period in 2005. For the year as a whole, the number of administrations totalled 3,683, an increase of 56.3 per cent.
While the number of receiverships continues to decline as a result of the introduction of the Enterprise Act in 2003, other types of corporate insolvency have all slightly increased, with compulsory liquidations up 6.2 per cent, voluntary liquidations up 3.7 per cent and voluntary arrangements up 2.5 per cent.
The highest proportion of business failure occurred in London, Scotland and Wales, where administration orders shot up by 243 per cent, 88 per cent and 83 per cent respectively. The areas to experience the least amount of business failures were the North East, the City of London and Northern Ireland. These three regions were also the only areas of the UK where the number of insolvencies actually decreased during 2006.
Analysis by industry revealed that by far the most stable sector last year was oil, where the number of business failures decreased by 91.7 per cent. Other industries to experience a decline in insolvencies included agriculture, forestry and fishing, utilities and the chemicals industry.
Meanwhile, business areas that appear to be struggling the most include building materials, where insolvencies almost doubled, servicing and repair, which saw a 63.9 per cent increase, and food retailing. The largest number of failures in a single industry was in business services, where 4,202 businesses entered insolvency.
Richard Lloyd, Managing Director of Experian's business information division offers this advice to business owners:
"In order to safeguard their future, businesses need to be vigilant to the threat of insolvency and should ensure that best practice is followed when it comes to credit management. Carrying out regular checks on both new and existing customers can often make a real difference and can ensure that the risks of exposure to business failures and bad debt are significantly reduced."
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