Insolvency levels start to drop

Accountants Northampton Harris & Co report that the number of businesses going bust has dropped sharply in the first three months of this year, but high street retailers are continuing to experience problems, according to analysis by PwC.

PwC found that in total there were 3,285 insolvencies in the first three months of 2013, down from 3,657 in Q4 2012 and 4,412 in the first quarter of 2012. However, the retail sector bucked the general trend, recording 407 insolvencies in Q1 2013 compared to 400 in Q4 2012.

The firm says administrations during the first quarter of 2013 were at their lowest levels since 2005, falling by almost a third from 724 in Q1 2012 to 490. Over the same period Company Voluntary Arrangements (CVAs) dropped to 104, their lowest level for 10 years.

Mike Jervis, retail expert and partner PwC, said: ‘Perhaps this is an early sign of confidence returning and also maybe a sign of some economic recovery. Some believe that the period of recovery immediately after recession creates more company insolvencies as asset values rise because creditors can take advantage of this and management over-trades. I don"t believe this will happen this time-management teams and stakeholders are sophisticated, responsible and measured and have learnt some hard lessons.’

Commenting on the substantial reduction in the use of CVAs, Jervis said: ‘This type of insolvency appears to have become less popular because many CVAs fail if they don"t address the fundamental viability of the underlying businesses, and instead simply focus, say, on store closures.’