Insolvency rates expose high street turmoil

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Number of first quarter failures worse than anticipated.

Insolvency rates among businesses in the UK are on the rise, new statistics reveal.

The latest figures from the Insolvency Service on the administration of wholesale and retail companies in Q1 2011 showed a 70% increase from the 58 company failures in Q4 2010 to 99 in Q1 2011.

The figures also marked an 11% rise on the 89 businesses that failed during the same quarter last year.

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The trend was reflected across all sectors, with corporate insolvencies up by 22% from Q4 2010 and manufacturing, which was previously leading the way in the recovery, suffering a 45% rise in administrations.

Barry Knight, head of retail at finance and business advisors Grant Thornton UK LLP, said that although a rise in insolvencies was expected, the number that occurred was “worse than most commentators had predicted”.

He said: “The high street has been struggling over the last few months with many retailers reporting some of their worst months on record. The pressures from high inflation — particularly in relation to commodity prices — and the rise in VAT and National Insurance contributions, have come through with full force this quarter and finally started to affect consumer spending, with retailers suffering as a result.”

David Hudson, partner at Baker Tilly Restructuring and Recovery, was not surprised by the increases as Q1 has historically been a tough quarter for businesses.

“However, companies that have used credit arrangements to continue to trade through 2010 are now nearing the end of their arrangements and their performance may not have been sufficient to continue to trade without extending or rearranging new agreements with their creditors and lenders,” he said.

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