MORE than half of the members of insolvency trade body R3 who work in corporate insolvency believe the number of cases in their sector will increase through the rest of 2014.
According to R3’s research, the wholesale and retail sectors are most likely to be hardest hit by insolvency in the coming months as the UK continues to recover from its recent economic difficulties.
But despite the initial impression of these findings, R3’s members believe that this increase in insolvencies could in fact be evidence of a strengthening economic recovery as insolvencies have historically peaked in the early stages of recovery. Further evidence of recovery was found in recent research carried out by R3, which showed that North-East firms have been showing consistent signs of growth through the year to date that are stronger than the equivalent numbers for other parts of the UK.
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R3’s latest Business Distress Index, which reports regularly on the successes and difficulties of hundreds of companies across the UK, showed that a record 66% of firms in the North East, Yorkshire and Humberside are showing at least one of the five key indicators of growth that it measures– investment in new equipment, increased sales volume, business expansion, increased profits, and growing market share.
Allan Kelly, who is chair of R3 in the North-East, said: “Sustained economic recovery is very welcome, but many North-East businesses are not out of the woods yet, especially as reserves have often been depleted over the recent past, and the growth indicators they’re experiencing may in fact increase the region’s future insolvency risk.
“Economic recovery can be even more difficult for a business to negotiate than a recession as they are exposed to new stresses and strains - overtrading through inadequate cash flow or reserves, less patient creditors, failing to credit check new customers, simply growing faster than cash or infrastructure can cope with, and the consequences of failing to invest during the recession can all cause insolvency.
“A rise in corporate insolvencies could be seen as confirmation that economic recovery is really underway at last, and it’s important to remember though that insolvency is not always the end of the road for businesses as it can provide an opportunity to rescue viable parts of a business and save jobs.”