A recent PwC survey showing that the pace of business failures has slowed is an indicator that the state of the UK economy is beginning to improve. The fact that growth in UK unemployment has also slowed helps to confirm this view.
However, insolvency experts have warned that the number of corporate failures could spike again as the UK comes out of recession. Experience of past recessions has shown that the sudden rise in failures is due to companies simply taking their eye off the key factor: cash.
National insolvencies which include all administrations, liquidations, and company voluntary arrangements in August totalled 1384, which is the lowest month since September 2008. Mike Jervis, partner at PwC Business Recovery Services said, “We are finally seeing a tail off in the huge numbers of insolvencies this recession has brought." But he added that he expected the high levels to continue into 2010.
The number of insolvencies – including administrations such as that of Coffee Republic but also company voluntary arrangements such as JJB sports and Focus DIY reached 1,977 in March 2009 – a ten year high.
The PwC survey also asked its Turnaround Director Panel, who consist of over 300 independent senior executives who can be introduced to a troubled business and take on an executive role in its turnaround, how they saw things improving. 67% of the respondents believed that over half of current turnarounds they were involved in would be successful and 85% of them believed that their key trading indicators have levelled off or are starting to improve.
However, there are still concerns that many companies are denying that they are in trouble. 56% of respondents are still finding that companies are unwilling to accept help. The credit crunch has not improved significantly as 86% of respondents were finding it the same or harder to raise new funds compared to last year.
In the survey opinions were very divided over the use of pre-packs. Many of the panel believed that it was a useful tool in the right circumstances. However some felt that it was unacceptable and morally questionable suggests there is still work to be done on making sure that there are appropriate safeguards in place to ensure the best deal for creditors. More information on the benefits of pre-packs click here and the code of practice.
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