After falling for two years, corporate failures jumped by 11 per cent in 2005 to 18,122, with the Retail and Business Services sectors particularly badly affected, according to Experian, the global information solutions company. Experian reported that this is the highest number of corporate failures recorded across the UK since 2002 and predicted that the upward trend will likely to continue in 2006.
Corporate failures also rose by seven per cent to 4,501 in the final three months of 2005, compared with 4,193 in the fourth quarter of 2004.
“The financial landscape for UK companies had already begun to change by the start of 2005 as rising interest rates and the consumer slowdown all took their toll,” said Richard Lloyd, Managing Director of Experian’s Business Information division. “And, of course, the rapid rise in energy prices hasn’t helped. Recent high profile failures such as Unwins, LDV, Tiles R Us and MVC, all in the last month, indicate just how fragile some sections of the economy are as we move into the New Year.
“We are forecasting that corporate failures will continue to rise in 2006 and so encourage businesses to ensure that they make the necessary checks on their customers, prospects and suppliers to ensure they are forewarned about any experiencing cash flow difficulties and possible failure. By taking the necessary action at the right time, businesses can prevent themselves going the same way and bearing the brunt of another company’s business failure.”
During 2005, voluntary liquidations and compulsory liquidations, which account for 80 per cent of all corporate failures, rose by 7.4 per cent to 9,083 and 14.4 per cent to 5,493 respectively. Receiverships fell by 31.7 per cent to 621 and voluntary arrangements by 1.0 per cent to 569. Administration orders continued to increase – up 44.3 per cent over the year – to bring the total for 2005 to 2,356.
Of the 34 industries surveyed by Experian, 25 recorded an increase in corporate failures in 2005, while just seven industries recorded fewer failures. Among major sectors, the largest increases were in Non-food Retailing (up 40 per cent), Business Services (up 12 per cent), Media (up 15 per cent), Diversified Industrials (up 19 per cent) and Building & Construction (up 8 per cent). Together, these five sectors accounted for more than a third of all failures.
Whilst smaller in absolute numbers, significant rises were also recorded in Oils (more than trebling to 11), Chemicals (13 to 27), Food Manufacturing (61 to 84) and Food Retailing (93 to 117).
The most significant improvements in 2005 were Post & Telecommunications (down 13.4 per cent) and Leisure & Hotels (down 10.7 per cent). The Engineering sector saw a welcome fall to 649 failures (down 5 per cent).
Regionally, the sharpest annual increase was in the North East, where 462 failures were recorded, up 59 per cent. Other regions to experience an above average annual increase were West Midlands (up 19.0 per cent), North West (up 11.1 per cent) and Yorkshire & Humberside (up 12.7 per cent).
Only Wales (down 5 per cent), City of London (down 0.7 per cent) and Scotland (down 0.3 per cent) recorded falls in corporate failures compared to 2004.