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Rate rise would keep failures high, credit insurer warns

A RISE in interest rates to support the pound would keep the rate of business failures next year at the same high level as in 1992 and 1991, Trade Indemnity, the credit insurance group, said yesterday.

The warning accompanied TI statistics showing an 8 per cent drop in failures between the first and second quarters of this year to 1,911, with all regions apart from Scotland and the north of England benefiting.

But the improvement was the result of a 'short-lived upswing' in business confidence after the election. The outlook remained poor. The firm said it would not change its prediction that failures in 1992 as a whole would be at last year's record levels. In 1991, 7,807 businesses collapsed.

If interest rates stay where they are, business failures could drop 10 per cent next year, TI said. But with the continuing uncertainty about the course of the economy, 'the financial pressures currently experienced by companies in all sectors will be maintained not just for the rest of this year but throughout 1993 as well'.

Among specific industries, the failure figures for advertising in the second quarter fell by nearly one third compared with the first, which TI said was encouraging.

Failures were now running 25 per cent below the level a year ago, but it was too early to say whether this was more than a temporary downward trend. The immediate and longer-term prospects for the advertising industry were also far from rosy.

There was further gloom from the Government's Insolvency Service, whose annual report said the number of compulsory insolvencies it handled was still rising. It was running at an annual rate of 38,000 at the end of June.

For the year to the end of next March the service is assuming a figure of 36,000. Last year the service was caught out in its planning by a far higher number of insolvencies than expected.

The number of directors disqualified for malpractice discovered as a result of insolvency has also shot up, with the service winning court orders against 326 directors compared with 251 a year earlier. Proceedings were started against 700 directors, compared with 499 in 1990-91. At the end of March, 909 cases awaited a hearing compared with 619 a year earlier.

During the year, 117 directors were convicted after prosecution by the Department of Trade and Industry, compared with 105 in 1990- 91. The service handled 26,186 bankruptcies compared with 14,359 the previous year, and 8,911 company insolvencies against 6,777.