Company failures down for second quarter

The number of business failures in East Anglia fell for the second quarter running during the three months to the end of October, according to new figures. But the trend is likely to resume an upward course in the New Year, regardless of whether the UK economy manages to shake off recession during the final quarter of 2009, according to business rescue and insolvency specialists McTear Williams & Wood.

Business failures across Suffolk, north Essex, Norfolk and Cambridgeshire fell by 23% compared with the second quarter of the year – well ahead of the 3% fall recorded nationally.And although the regional total was still 9% higher than during the corresponding quarter last year, this was also far better than the national figure of 45%.

Taking the level of business failures at the start of the credit crunch as a base of 100, the index for East Anglia now stands at 151 compared with a national index of 184, indicating that the region is suffering from the recession less than the country as a whole.However, at a county level – where the numbers are relatively small and are not necessarily statistically significant – the picture was more mixed.

Following a 40% fall during the second quarter, Suffolk and north Essex saw a decline of only 10% during the third which, following sharp increases during the first quarter of the year and the final quarter of 2008, resulted in an index of 189 – slightly worse than the national figure.In contrast, Norfolk saw a drop of 50% during the third quarter, leaving the county with an index of 136 – still ahead of pre-credit crunch levels but well below the national average.Cambridgeshire continued to be the county least affected by recession in the region, with a quarterly fall of 12% and an index of 121.

McTear Williams & Wood, which has offices in Ipswich, Colchester, Chelmsford, Norwich and Cambridge, believes the fall in failures during the third quarter reflects cost cutting earlier in the year combined with leniency from banks, HM Revenue & Customs and trade creditors. However, the firm says that, with creditors probably unable to extend much further help and a number of Government programmes due to expire at the end of the year, the “real test” for businesses will come in the first quarter of 2010.

Andrew McTear, partner, said it was well documented from previous downturns that more companies tended to fail as economies emerged from recession because increased sales required more working capital. Regardless of whether the UK economy emerged from recession during the final quarter of 2009, more business failures were therefore likely next year – particularly with the impact on firms’ finances of shut-downs over the Christmas holiday period and tax payments due at the end of January. Even in the event of a sustained recovery, working capital issues could be expected to arise while a “W” shaped recovery, involving a second downward dip in the economy, would take its toll through attrition, given the length or recession already endured.

Colleague David Wood said companies would be well advised to assess their future need for working capital and to start planning now. “Our message to struggling businesses remains to take advice early; like most insolvency practitioners we offer a free initial consultation,” he said. “The important thing to remember is that seeking advice doesn’t necessarily lead to the closure of your business.”

East Anglian Daily Times
17 November 2009

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