Credit squeeze boosts British firms' liquidations

The number of companies going bust in England and Wales jumped sharply in the second quarter as the credit squeeze tightened its grip, government figures showed.

The Insolvency Service said 3,560 companies went into liquidation between April and June.

This was an increase of 11.6 per cent on the first quarter and an increase of 15 per cent on the same period a year ago.

While the actual number of insolvencies is only around half that reached in the recession of the early 1990s, a steep rise in the number of firms in administration suggested more pain to come.

More than 1,500 companies were placed in administration in the first half of this year, 42 per cent more than in the same period a year ago.

"Unfortunately, this feels like just the beginning," Nick Wood, recovery and reorganisation partner with Grant Thornton, said.

"The negative sentiment expressed in a huge range of economic indicators is now feeding through to the real economy, with businesses that a year ago had been able to paper over the cracks now being fully exposed."

Separate data showed corporate insolvencies in Scotland and Northern Ireland were some 30 per cent higher in the second quarter than the first, although these figures are not seasonally adjusted.

There was better news on personal insolvencies. The number of people declaring themselves bankrupt actually fell in the second quarter.

However, analysts said this may have been skewed by the popularity of Individual Voluntary Arrangements - court-backed repayment agreements - in recent years and a rise in the number of people entering into informal debt management plans.

Louise Brittain, a partner at business advisers Baker Tilly, said the figures masked underlying problems.

"Individuals are being drawn into debt management schemes which are not reported in these figures and have altered the overall picture of indebtedness."