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Q2 Insolvency statistics - "nothing inevitable about continued falls" - comment from insolvency practitioner Nick O'Reilly

By CreditMan Friday, August 2, 2013

Nick O'Reilly, Insolvency Practitioner at the chartered accountants HW Fisher & Company, commented:

"What a difference an adverse quarter makes. After four years of steadily falling levels of insolvency, this time three months ago some were talking not just of light at the end of the tunnel, but being out of it.

"The second quarter's surprise jump in both company liquidations and individual insolvencies have made that view look dangerously complacent.

"There is no doubt the economy is rebounding, but there is nothing inevitable about continued falls in insolvency. There will always be a degree of structural insolvency - a level below which it simply cannot fall.

"A return to confidence in the economy can also trigger a spike in insolvency if more business owners take the opportunity to abandon deadwood companies and start new ones.

"While the rise in the quarter-on-quarter numbers are disappointing, year-on-year levels of business failure are down.

"It is tempting to see this quarterly increase as a blip. But in the past two economic cycles, insolvency rates peaked two years after the recession ended. If that pattern repeats itself, that would imply a further jump in insolvency next year.

"Certainly the "zombie" companies stuck in the twilight zone between survival and failure will be crucial. It has always been assumed these moribund firms will fall off the cliff when interest rates rise.

"They continue to represent a ticking timebomb that no amount of economic good news can defuse. Insolvency levels could blow up again at any point."