Company failures low despite the downturn
Business failures in East Anglia have fallen for the fifth successive quarter stabilising close to pre credit crunch levels. The number of company failures in quarter two of this year in East Anglia was down 16pc on the previous quarter compared to an increase of 3pc nationally. A comparison of quarter two this year with quarter two of 2009 shows company insolvencies fell 41pc in East Anglia compared to 18pc nationally.
McTear Williams & Wood's business index for East Anglia now stands at only 114, a rise only of 14 from the baseline of 100 set in quarter three 2007. The national comparative is 152. The insolvency statistics suggest that East Anglia has recovered more strongly from the recession than the rest of the country but with wide variations by county.
- Norfolk actually decreased 55pc quarter on quarter and now has an index of 82 indicating that the local economy is fairing better than it did prior to the recession.
- Cambridgeshire, with an index of 53 continues to outperform the national and county indexes by a large margin - apparently in an economic micro climate of its own.
- Suffolk and North Essex has bucked the trend seeing increased in corporate insolvencies both quarterly and annually and its index now stands at 231.
To some extent the figures are flattered by Cambridgeshire with its concentration of high technology businesses more reliant on the availability of venture capital than sales/GDP growth. If Cambridgeshire is taken out of the index it would stand at 162 which is pretty much in line with the national index at 152.
Most insolvency professionals expect the number of corporate insolvencies to rise as the early stages of a recovery are normally the most challenging for businesses. But so far this recession has differed from others with creditors being unusually lenient and it is not clear what might change this anytime soon. The key will continue to be the attitude of HM Revenue & Customs to “time to pay” arrangements and the support provided by banks.
Our view is that the number of corporate insolvencies will remain low if the economic recovery continues. However, if this were to falter creditors' attitude towards risk could turn on a sixpence, lending standards would tighten and businesses could fail in large numbers.
To avoid becoming an insolvency statistic companies should maintain a cash cushion to help absorb shocks and have a plan B ready to cut costs if necessary.
Eastern Daily Press
11 August 2010
