A slight increase in the number of corporate insolvencies towards the end of 2007 could be just a taster of what’s to come this year, it has been claimed.
A partner at business advisory and accountancy firm Grant Thornton has warned that the small rise in corporate insolvencies that marked the end of last year is just the prelude to a far more difficult year in 2008.
Malcolm Shierson, recovery and reorganisation partner at Grant Thornton, said: “We now expect the number of corporate insolvencies to increase by 10-15% in 2008, as many of the credit arrangements offering life support to ailing companies have almost disappeared. It is increasingly unlikely that there will be a quick return to business as usual.”
The Insolvency Service revealed that there were 3,135 liquidations in England and Wales in quarter four of 2007, an increase of 0.3% on the previous quarter. However, this was a decrease of 2.1% on the same period in 2006.
The number of companies going into administration (although this typically involved larger firms) increased significantly, from 506 in quarter three to 557 in quarter four.
Shierson said that in current conditions, two key options for securing credit are becoming increasingly difficult to arrange – selling on debt and refinancing.
He added that many traditional lenders are now focusing more on the clients they know well, rather than taking the refinancing risks they may have six months ago.
Shierson said: “Many businesses are hoping to simply ride out the credit crunch, but it is now clear the wait-and-see approach is not sustainable. If a company is experiencing difficulties operating within facility limits, the time to act is now.”
© Crimson Business Ltd. 2008
