“The drop in corporate insolvency numbers is reassuring, especially as it comes after last week’s upbeat GDP figures, showing that Britain exited recession in the third quarter.
“Whilst this decrease in corporate insolvencies is to be welcomed, there are many other businesses stagnating – being kept alive by the forbearance of banks, rather than being shut down as they would have been during previous recessions. Our research shows 146,000 businesses are in fact ‘zombies’, whereby at best they are able to pay the interest on their debts but not reduce the debt itself. Whilst there is always a population of businesses that are treading water, there has been an increase in the number of businesses that are doing so and subsequently delaying their collapse.
“Some of these businesses have been ‘running on empty’ for quite some time now, and with no reserves left in the tank, they may not be able to carry on for much longer. The ‘zombie’ phenomenon is exemplified by the increasing time larger businesses are undergoing a bank led “workout” as funding structures have become far more complicated – it is taking businesses longer to either recover or enter formal insolvency.
“If growth continues, as the latest retail sales and GDP figures suggest, many of these zombie businesses may face closure. We would urge these businesses to seek professional advice in order to lift them out of the ‘zombie zone’, enabling them to withstand unfavourable changes in circumstances and eventually take advantage of growth when it happens.”
Personal insolvency increases quarter on quarter but down from this time last year
“It comes as little surprise that we have seen increases in personal insolvency levels this quarter, as a sizeable proportion of the population have been struggling with their personal finances for quite some time. It appears for some their debt has spiraled out of control, forcing them into insolvency.
“More worryingly is these official figure only paint a partial picture, many others are likely to be in an informal insolvency procedure such a debt management plan or have resorted to taking out a payday loan to make ends meet. R3’s research, conducted by Comres, in July revealed that 4 million adults said they are likely to seek a payday loan in the next six months.
“Debt concern is also rife amongst the UK population. Research by R3 indicates that over half the population (54%) worry about their current levels of debt, while 51% struggle to make it to payday each month, especially in the 35-44 age group (average of 68%).
“This debt concern may be compounded over the next few months with additional pressures being applied to the purse strings through energy price hikes and Christmas; these seasonal expenditures are likely to be reflected in the next quarter’s personal insolvency figures which may see a further rise.”
Lee Manning, R3 president
Submitted by R3