By Claire West
The total number of corporate insolvencies in Q2 2010 have decreased quarter-on-quarter, according to statistics released by the Insolvency Service. CVAs, a mechanism allowing a company to keep trading, have seen a substantial increase as a way to address debt problems.
David Hudson, Partner at Baker Tilly Restructuring and Recovery LLP, said: “Today’s decline in the number overall was expected as creditors continue to show empathy for the economic challenges faced by UK PLC".
“What is interesting is the substantial increase in the use of CVAs, a mechanism which ensures the company continues to trade and the survival of the business".
"The process normally involves formally agreeing a repayment plan with its unsecured creditors, allowing a greater return compared with liquidation or administration".
"It also is favourable to secured lenders as they are not normally negatively affected by this process. CVAs have been commonly used in the retail sector throughout the recession and we are now seeing these more frequently applied across other industries".
“Overall, there is still a great deal of uncertainty and today’s figures don’t appear to tell the whole story. We expect further problems ahead, especially as suppliers and contractors to the public sector suffer further knock-on effects of the well-publicised spending cuts.”
Stephen Laws, President of R3, said: “In regards to corporate insolvency, this recession has been atypical, and businesses can’t afford to be complacent".
"We would expect corporate insolvencies to rise after a recession as they did in previous recessions, but the figures only show a 0.5% increase in Company Liquidations from the last quarter. We suspect these increases in corporate insolvency may not show until the end of this year or next".
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