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News - 22 July 2006

Business failures still rising but not in the south east

Business failures nationally are up by 2% for the latest quarter and 8.9% for the year so far. But in the south-east fewer companies are going bust with a fall in business failures of 4% over the last quarter.

Business failures in the UK rose to 4,720 (up 2.0%) in the second quarter of 2006 compared to the same period in 2005. The total for the year so far is 9,538 – 8.9% more than in the first half of last year. The figures are from the latest Experian research.

The negative trend is slowing but given that the first quarter of 2006 saw the highest increase in business failures since 1999 there is still cause for concern. The figures indicate that 80 companies are going bust every working day in the UK.

Richard Lloyd, Managing Director of Experian’s Business Information division, commented, “Although an increase of 2% is less alarming than the previous quarter’s 15% increase, there is no getting away from the fact that in 2006, failures are already up by 8.9% on the previous year and look set to continue to rise.”

And should businesses in the south-east feel complacent being in a very much stronger position compared with last year? Absolutely not. Businesses may be faring better in the south-east but this is no reason to drop the vigil as all things are connected.

According to Richard Lloyd, “Insolvency has been rising since 2004 and we are not expecting this trend to change. With the possibility of a rise in interest rates on the horizon, higher costs, especially for fuel, energy and raw materials, and no improvement in late payment trends, the need for businesses to check the creditworthiness of their customers and potential prospects has never been so pressing.”

Compulsory liquidation has continued to rise, up 4.1% on the second quarter of 2005 and by 14.5% during the first six months of the year. Administration orders are also on the increase – up 22.9% during the second quarter of 2006 and up 37.8% in the first six months of the year, compared to the first six months of 2005.

In contrast, voluntary liquidations fell by 0.8%, voluntary arrangements fell by 15.1% and receiverships fell by 26.7% during the second quarter of 2006.

However, during the first six months of the year only voluntary arrangements experienced an overall fall of 19.2%. Apart from this one exception, increases were right across the board: voluntary liquidations (up 1.5%), compulsory liquidations (up 14.5%), receiverships (up 5.2%) and administration orders (37.8%).

Corporate failure in the quarter affected companies across the country and a broad mix of sectors, including companies such as Global Video in Glasgow, Chemix (chemicals) in Stockport, Sangers Group (audio and photographic equipment) in Birmingham, Emerald Airways (freight and passenger transport) in Blackpool and Metal Castings (engineering) in Worcester.

Of the 34 industries surveyed by Experian, 17 recorded an increase in corporate failure in the second quarter of 2006, 14 recorded a fall and four industries remained the same. During this time, increases in failure were most apparent in the Property sector (up 42.9%), Plastics & Rubber (up 88%) and Food Retailing (up 45.8%). The largest number of failures in a single sector was in Business Services – up 26.5% to 1,021. A further 428 failures were recorded in Building and Construction (up 1.9%).

Sectors experiencing a decline in business failures during the second quarter of 2006 included Printing, Paper & Packaging (down 42.9% to just eight). However, this sector has experienced an overall increase of 21.1% over the first six months of the year. Failures in Banking & Finance fell by 19.4% to 25.

By region, so far in 2006, only the City of London has seen a fall in corporate failures, by 7.8%. Corporate failures increased in all other regions, with Wales experiencing the highest overall increase of 57.8% in the first six months of the year and 51.5% to 100 in the second quarter. Outside London, the North West recorded the highest number of failures in the first six months of the year – 1,195 – although they fell by two to 556 in the second quarter.

During the second quarter of 2006, business failures increased in the following regions, listed in order of increase:

  • Wales – up 51.5 per cent
  • West Midlands – up 13.5 per cent
  • London – up 9.9 per cent
  • Scotland – up 9.6 per cent
  • East Anglia – up 4 per cent
  • East Midlands – up 2.9 per cent
  • Yorkshire and the Humber – up 2.3 per cent.

During the second quarter of 2006, business failures fell in the following regions, listed in order of decline:

  • City of London – down 19.5 per cent
  • South West – down 5.4 per cent
  • South East – down 4.0 per cent
  • North East – down 3.1 per cent
  • North West – down 0.4 per cent.

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