Many British businesses are giving up trading before being formally forced into insolvency as they face a worsening economy and banks reluctant to provide them with the funding they need to stay afloat, research published today suggests.
The number of companies entering liquidation isset to reach its highest level in 16 years according to the research, by accountancy firm Wilkins Kennedy.
The number of businesses ceasing to trade in the year to March 31 2009 is expected to reach 23,713, according to the firm, which analysed data from Companies House. This would be a 17 per cent rise on the previous year and the highest since 1992-93, when the UK economy began to emerge from the last recession and liquidations, which tend to peak towards the end of a slowdown, reached 28,700.
The data also shows that there were many more company liquidations, where a company stops trading, than insolvencies.
“The number of liquidations is running at nearly five times the rate of company insolvencies, which shows that far more companies are closing down than the official insolvency figures reveal,” Keith Stevens, insolvency partner at Wilkins Kennedy, said. “We are seeing an increasing number of companies choosing to throw in the towel and cease trading early rather than hanging on until the bitter end and waiting until they are insolvent.”
Wilkins Kennedy warned that some liquidations were happening because lenders are refusing to extend credit to businesses that are otherwise trading profitably.
Mr Stevens added: “Falling demand and the reluctance of lenders to extend credit are having a major impact on the ability of companies to continue trading.”
Construction and property service companies accounted for over a third of all UK corporate insolvencies at the end of last year, Wilkins Kennedy said.