South: Insolvency totals point to temporary calm

Monthly corporate insolvency figures from KPMG show a substantial drop in the number of companies going into administration. However, London and the South East continue to feel the brunt of the recession with nearly a third of administrations happening in this region.

Richard Fleming, UK head of restructuring at KPMG, commented: “We have seen average numbers of around 350 administrations a month since the beginning of the year but the latest monthly figures are much lower at 178. While we are entering the quieter summer months, such a dramatic drop of almost a half is very unusual given the current economic climate. We are not convinced, however, that this indicates an upturn in sentiment; more a temporary reprieve in advance of a second wave of insolvencies. From the business perspective, HMRC’s decision to allow struggling companies to delay payments on PAYE and VAT has bought them time by freeing up working capital. From the lenders’ perspective, the recent emphasis has been on debt for equity swaps but they are preparing for a significant uptick in insolvencies towards the end of the year.

“The total number of insolvencies so far this year is at 1571, some way behind the 5,000 we predicted for 2009, but our conversations with businesses and lenders suggest this number will be reached quickly after the holiday season with a wave of insolvencies in quarters three and four.”

In the London and South East region a total of 527 insolvencies have been recorded so far this year with the latest monthly figures showing 63 cases compared to January when 123 insolvencies hit the region.

Fleming predicted which businesses were likely to suffer most in the second wave: “Time is running out for businesses in a number of sectors where conditions have not improved and are unlikely to for some time. We expect to see further fall out in the automotive sector, particularly the supplier base, where many companies have ever decreasing options in the absence of demand. Commercial property is a sector whose problems can’t be brushed under the carpet for much longer. With billions of refinancing needed by the end of the year, it looks set to suffer in the latter half of the year.

“September is likely to be the crunch month for many businesses in tourism and leisure with the busiest period of the year over. With demand expected to be at new lows, even larger industry players could be affected.

He concluded: “Outside retail, we have hardly seen any businesses in the £50-250 million turnover bracket go into administration in the last decade, but we expect a number to enter formal insolvency in the last quarter of 2009 when management has utilised all the tools at their disposal, such as cost reduction plans, and finally run out of options.”