Strategic Finance
Preventing insolvency |
|
|
| Strategic Finance | |
| Written by Suzanne Jones, Solicitor at Howard Kennedy | |
| Tuesday, 31 August 2010 | |
|
Company directors should still tread cautiously until the UK economy stabilises. The Insolvency Service recently released the insolvency statistics for the second quarter of 2010. In England and Wales compulsory and creditors’ voluntary liquidations, receiverships and administrations all decreased on the same period a year ago. Company voluntary arrangements however increased. Personal insolvencies have fallen for the first time since 2007. However, this is an increase of 5% on the same period a year ago. Bankruptcies were down but individual voluntary arrangements and debt relief orders increased. Other statistics also suggest improvements in the second quarter: gross domestic product, total services output, total production output, manufacturing, construction, agriculture, forestry and fishing output all increased compared with the previous quarter. The number of unemployed and the number of repossessions also fell. The figures look promising, but other indicators suggest the UK economy has some way to go. Vince Cable, business secretary has spoken of concerns about the UK entering back into recession. Mervin King, governor of the Bank of England warned that the UK economy faces a ‘choppy’ economic recovery over the next 2 years. The Bank of England recently lowered its economic growth forecast and said inflation would stay higher for longer than previously forecast. Many companies have entered into time to pay arrangements with HMRC and £5.13bn of tax payment is delayed under the scheme which will soon need to be repaid. There is always a time lag of 12- 18 months after recessions before it effects corporate failures, however this recession and the actions taken by the government could mean that the time lag is longer, as the government has put pressure on banks to lend, although the amount of credit available is extremely limited and they have allowed companies to defer their tax payments. This will without doubt have an effect on the corporate insolvency figures. Tough austerity measures have been announced, there is still an ongoing lack of credit and VAT will increase to 20% at the start of next year. All of which suggest difficult times ahead. Chris Huhne was optimistic and said on Radio 4 the ‘‘World At One’ programme, “The reality is that it’s very unusual that there is a double-dip recession in economic history.” However, the reality is that the banks had never collapsed nor faced the brink of collapse as they did in 2008; it was an unprecedented economic event meaning the future repercussions are unpredictable and parallels are difficult to draw. It is for these reasons individuals and companies need to tread with caution. Company directors should focus on the operational side of the business to better place the company, should there be a downturn. It is for these reason directors are reminded of the following:
The important rules for directors are to be aware of the financial position of the company at all times, and if unsure how to move forward seek advice immediately. The sooner a director identifies the financial difficulties the more options will be available. The view of many insolvency practitioners and insolvency lawyers is that this is the eye of the storm and companies and individuals should continue to tread cautiously until the UK economy becomes more stable. It is therefore prudent for company directors and individuals to remain cautious as to the future. |
|
Digg it! 
del.icio.us 
Newsvine 
Reddit 
Stumble It! 
