Corporate liquidations rise in Q2 2011, compared to the same period last year

According to the latest figures from the Insolvency Service, Corporate insolvencies have increased again, when compared to the first quarter of this year and the same period in 2010, (covering Q2 2011).

The seasonally adjusted, quarterly data reveals there were 4,233 compulsory liquidations and creditors’ voluntary liquidations in total in England and Wales in the second quarter of 2011. The figures at a glance mean that there has been a 2.7% rise on the previous quarter and a more substantial and worrying increase of 4.4% on the same period from 2010.

Compulsory liquidations, in particular, have increased by almost 20% per cent when compared to the Q2 2010 data.

According to some industry insiders the figures suggest that so-called ‘zombie companies’- firms with low profitability that can pay their interest bills but struggle to pay debtors- are now being wound up as there ability to spin out debtors is halted as the debt amount moves from short term to medium term, and creditors call time on the debt.

“As a result of the continuing tough trading conditions, we have seen many of these zombie companies run out of momentum, particularly as the retail and consumer markets remain challenging,” says Martin Walmsley, head of debtor insurance at Lloyds TSB Commercial Finance.

“However, businesses should not be downhearted by these statistics. Looking at the figures long-term, in the 12 months ending Q2 2011, only approximately one in 139 active companies went into liquidation.

To ensure firms are in a strong trading position and are protected against potential customer insolvencies and protracted payment, credit insurance, such debtor insurance policy should be implemented to safeguard cashflow. This can be used in conjunction with products such as factoring, or invoice discounting, and in doing so, reduce the lag between good out and payment in.

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