Insolvencies jump amid

fears of recession

The number of companies becoming insolvent jumped by 26 per cent during the third quarter of 2008 against the same period last year in a further warning sign that the recent financial turmoil is starting to spill over into the real economy.

Figures from the Insolvency Service show there were 4,001 corporate insolvencies in total in England and Wales in the third quarter of 2008.

These new figures provide further evidence of the deteriorating UK economy amid a forecast by the International Monetary Fund that Britain will suffer a downturn next year on a par with the early 1990s recession.

The figures also picked up growing signs of strain among consumers - particularly those with mortgages - with 27,087 declaring themselves insolvent in the third quarter. This is up 5 per cent against the third quarter of 2007.

This is made up of 17,341 bankruptcies - up 10 per cent from the same period in 2007. But the number of individual voluntary arrangements (IVA), a type of insolvency, fell by 3 per cent to 9,746 against the same period in 2007.

Pat Boyden, personal insolvency expert at PwC, the professional services firm, said he expected further corporate and consumer insolvencies. "The corporate situation is the real concern. Companies across different sectors are coming under pressure particularly in areas like construction and commercial property.

"I would expect further insolvencies this year but there are differences with the 1990s recession because we did not suffer a banking crisis then. So we are rather heading into unchartered territory."

Liz Bingham, head of restructuring at Ernst & Young, said that so far there had been 52 profit warnings from companies in the fourth quarter - 60 per cent more than the same period in 2007.

"It takes little for companies to be stretched to breaking point. Even in 2007, more than a quarter of outstanding corporate debt was being serviced by firms whose profits were insufficient to cover the interest payments, according to the Bank of England," she said.

In the 12 months ending September 2008, 0.6 per cent of active companies went into liquidation, the same as during the corresponding quarter of 2007. However, there were also 1,444 other corporate insolvencies in the third quarter of 2008 including 270 receiverships and 1,007 administrations.

Mark Sands, director of personal insolvency at KPMG, said that the professional services firm had reviewed many of the IVAs put forward over the past year and consumers with a mortgage now make up 45 per cent of those seeking help - up from 30 per cent last year. He expects the insolvency figures for individuals to rise as sole traders such as builders and plumbers begin to declare themselves insolvent.