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published FEBRUARY 09, 2010

Freshfields comments on Corporate liquidations fall by 1% as recession counts over 27,800 corporate casualties in the UK

The fourth quarter of 2009 has seen 4,566 corporate liquidations (a small decrease of 1.1% on the same quarter in the previous year) with 849 administrations, typically involving medium or larger corporate entities, down by more than half (58%) on 12 months ago (or 34% if you ignore a group of 729 linked administrations in Q4 2008), and Company Voluntary Arrangements (CVAs), popular when a company’s real estate leases are the basis of financial distress, increase 47% on Q4 2008. The Insolvency Service’s latest set of data published today and analysed by Freshfields Bruckhaus Deringer’s restructuring and insolvency practice brings the total of corporate liquidations witnessed in 2009 to 19,077 (a 22% increase on 2008’s 15,536), administrations to 4,161 (down 13% from 4,822 in 2008 or up 1.4% when discounting the group of 729 linked administrations in Q4 2008) and CVAs to 726 (up 25% from 587 in 2008). Richard Tett, a restructuring and insolvency partner at Freshfields commented: ‘Until the recent news of the UK economy inching out of recession with growth of 0.1%, the preceding six consecutive quarters of negative growth had seen the economy shrink by 5.8%. Plainly this was a major contributory factor to the 27,802 liquidations recorded during the six quarters since the credit crunch bit. Considering that the 27,802 liquidations does not count administrations, CVAs and receiverships, businesses and jobs have paid a heavy toll.’ ‘However, despite one of the deepest financial and economic crises in living memory, things have not been as bad as some predicted. There were certainly some high profile corporate casualties in 2008 such XL Airways, Woolworths, Lehmans and the Icelandic banks, but 2009 saw fewer major corporate collapses than feared. In that respect the economy has been more resilient than people expected despite such a deep recession – for example unemployment has not broken 3 million as was predicted, indeed it recently fell.’ 'Regrettably liquidations and insolvencies are part and parcel of any economy at the best of times. Even in strong economic years like 2006, when the UK economy grew on average by 2.85%, over 13,000 corporate insolvencies were recorded. While causing significant distress to those involved, the 19,077 corporate liquidations in 2009 needs to be seen in that light,’ says Tett. He says, ‘Schemes such as HM Revenue & Custom’s Time to Pay arrangements which, in some circumstances, allow companies to spread payment of taxes, plus a constructive approach from some lenders have given businesses some financial breathing room. This has helped avoid the worst predictions of corporate defaults and insolvencies.’ ‘With the prospects for the economy remaining uncertain, some question whether the peak in corporate insolvencies is still ahead of us. Many businesses remain significantly stretched and are struggling financially. Time will tell if they can deleverage debts and nurse themselves back to financial health, as people hope, without the pain of an insolvency process,' he says. ‘A successful outcome rests on many factors, not least the overall economy avoiding a double dip, government support continuing and counterparties like lenders remaining somewhat flexible as in 2009. The small decrease in liquidations is encouraging but it's too early for people to be breathing a sigh of relief.,’ he concluded.