Tough year for companies as insolvencies rise by 10%

A recent end-of-year report has revealed that the number of UK-based businesses failing in the fourth quarter of 2002 increased by 4.6% compared with the fourth quarter of 2001, bringing the total increase for 2002 to 9.8%.

However, according to the latest figures released by global business solutions company Experian, only Northern Ireland, the City of London, and Yorkshire & Humberside recorded fewer failures in 2002 than 2001. Northern Ireland recorded 76 business failures during 2002, a decline of 21.6% on 2001.

Scotland fared worst with 855 company failures in 2002. This represented the biggest increase in business failures in the year – 27.8% – with 186 more business failures recorded, three times the national average and the highest in the UK.

Overall, 18,926 insolvencies were recorded in 2002, representing an increase of 1,691 on 2001.

A total of 4,728 companies failed during the fourth quarter of 2002 compared with 4,518 in the fourth quarter of 2001. The number of company failures was virtually unchanged between the third and fourth quarters of 2002.

The most significant trend in 2002 was the growth in compulsory liquidations, these rose by 1,706 (37%), in sharp contrast with other categories of insolvency.

Managing Director of Experian’s Commercial Business, Phil Cotter, said: "Whilst the survey revealed a very small decline in the number of business failures between the third and fourth quarters of 2002, the sharp rise in compulsory liquidations is particularly worrying. Overall, there has been a steady increase in the number of business failures throughout the year, with particular areas of the country and industry sectors suffering significantly more than others."

By industry sector, the business services sector saw failures increase by 327 in 2002 (9.9%); failures among engineering companies were up by 11.3%, while information technology increased by 26.1% and the telecoms sector by 33.3% over 2001. Insolvencies in the media sector, which has been suffering from a lengthy decline in advertising revenues, rose by 8.9% to 598 in 2002.

Mr Cotter said that the final insolvency figures for the year were indicative of "continued economic difficulties faced by the business community".

He added: The current economic climate is certainly having an impact on business performance and confidence, so businesses need to be even more vigilant in looking out for the impending signs of insolvency".

He cautioned businesses to carry out regular checks on both new and existing customers to limit the risks of exposure to business failures and potential bad debt.

(SP)