By Max Clarke

RSM Tenon believe 2011 will see increasing levels of corporate insolvency adding to fears of a ‘double dip’ recession.

With the Government’s Insolvency service announcing official corporate insolvency statistics for 2010 on Friday 4th February, RSM Tenon, the insolvency and turnaround specialists, predict the UK will see an 18% fall in companies entering into formal insolvency. However, RSM Tenon believes that this won’t reflect the ‘pain on the ground’ as the number of business failures is 32% higher than pre-credit crunch levels.

Carl Jackson, Head of Recovery at RSM Tenon, said:

“We expect the Government figures out on Friday to show an approximate 18% decrease in corporate insolvencies. However, we believe that this does not reflect the true state of UK business because the number of insolvencies in 2009 was such an abnormally high level.

“Looking forward, 2011 will be a difficult year for businesses across the UK and unfortunately the growing fear of a ‘double dip’ recession now has to be taken very seriously. There are a lot of businesses on a knife edge and with pressure mounting on the Bank of England’s Monetary Policy Committee to increase interest rates, even a 0.5% rise could result in an increase in business failures.

Sectors that rely on discretionary spend, such as Hospitality & Tourism and Retail, will continue to struggle following the rise in VAT and increasing inflation. Some banks are compounding the situation further as they are becoming increasingly impatient with failing businesses. Many turnaround plans set out over a year ago are taking longer than expected for any improvements to be seen. Therefore, some lenders are now willing to cut their losses and accept the bad debt instead of continuing to drip feed businesses that show no progress. With these facts in mind, we believe corporate insolvencies will hit 24,000 in 2011.

“On top of all this the Government has gambled that the private sector will pick up the slack left by the public sector cuts. The cuts could actually have a negative effect on the private sector businesses that used to support public sector organisations causing more corporate insolvencies. However, we will see if this gamble has paid off later this year and in early 2012 as these cuts start to take affect. If not, the UK could see rising unemployment figures to the record level of 3 million last seen in 1993, again adding to fears of a ‘double dip’ recession.”

Statistics from Tracker, RSM Tenon’s early warning system for bad debts show that the Public Services and Hospitality & Tourism sectors showed the lowest decrease in corporate insolvencies over 2010 as these sectors rely heavily on discretionary public spend. Conversely, many Manufacturing sectors outperformed the average and the Wholesale sector showed one of the strongest signs of improvement with a drop of 30%.

Regionally, Wales and the South West of England saw the lowest decreases in corporate insolvencies throughout 2010 with a drop of 4% and 8% respectively. On the other hand, the Midlands and London saw the greatest decreases with drops of 21% and 24% respectively.