Business Insolvency Index – Jan 2013: Business insolvencies fall in 2012

Max FirthThe latest Business Insolvency Index from Experian®, the global information services company, reveals that during the full year 2012 fewer businesses failed – with 1.04 per cent of the business population failing compared to 1.10 per cent in 2011.

 The year ended with December seeing 0.08 percent of businesses fail compared to 0.11 per cent in the same month during 2011.

 The figures for 2012 highlight a more stable picture amongst businesses with the data showing that the insolvency rate remained broadly flat (between 0.25 and 0.27 per cent) in each quarter throughout the year – which is a slight improvement on 2011, when the range was between 0.26 and 0.29 per cent.

 The greatest improvement in the rate of insolvencies was seen by firms with 51-100 employees – their insolvency rate fell from 2.22 per cent in 2011 to 1.83 per cent.  This was followed closely by firms with 26-50 employees whose insolvency rate fell to 2.21 per cent, from 2.59 per cent in 2011 and firms with 11-25 employees, where the insolvency rate dropped from 2.60 per cent in 2011 to 2.35 per cent.

The only significant year-on-year increases in the rate of insolvencies came from the largest firms; all those with over 500 employees, which saw an increase from 1.46 per cent in 2011 to 1.61 per cent in 2012. This was fuelled by some high profile high street losses in 2012 including Comet, JJB and Clinton Cards.  In addition, micro firms with 1-2 employees also saw a slight increase in insolvencies from 0.71 per cent to 0.73 per cent.

Max Firth, Managing Director, Experian Business Information Services, UK&I said: “Following the slight upturn in 2011, 2012 has seen the rate drop again and then remain stable throughout the year. In particular, firms that suffered most during the downturn were the ones to see the most significant improvements.

“The rate of insolvencies is significantly lower now than when it was at its peak in 2009 at 1.25 per cent, but there is still some way to go before we reach the pre-recession rate of 2007, which stood at 0.97 per cent.

“This is highlighted by the slight increase in insolvencies amongst larger businesses – which has been followed by more high profile insolvencies already in 2013 – highlights the need for businesses to stay alert to changes which may affect them.  Ongoing monitoring of all clients and suppliers regardless of size is essential, as the impact of larger corporate insolvencies can be felt down the supply chain.”

Regional view

Insolvency figures have shown improvements in a number of areas, with the biggest improvements coming from the North West, Wales and the West Midlands.

Scotland, which experienced an increase in its insolvency rates later than other areas of the UK, had a good year.  The rate of insolvencies dropped by more than a third in the second half of 2012 to 0.18 then again in Q4 to 0.11 per cent – resulting in an annual figure of 0.86 per cent – the lowest rate for Scotland since 2010.

 Figures for the North East were up in 2012, having experienced a steady increase in insolvency rates throughout the year.  In addition, Yorkshire and the East Midlands have witnessed a slight increase, but have remained broadly flat.

Sector view

Of the UK’s five largest industries – business services, IT, property, construction and the leisure and hotel industry – the IT sector was the only one that saw signs of a difficult year, with insolvency rates up to 0.74 per cent in 2012, having held its annual insolvency rate at 0.65 per cent since 2010.

It was the hotel and leisure industry that made the most significant improvement with the data showing a drop from 1.82 per cent in 2011 to 1.77 per cent in 2012.  Figures for the hotel and leisure industry dropped dramatically in Q3 and held at 0.39 per cent in Q4, possibly as a result of the Olympic and Jubilee summer.

There is also good news for the property, building and construction and business services sectors – all showing a drop in insolvency rates compared to 2011.

Max continued: “As firms start to show signs of stability, and in some pockets of the UK, growth, they need to remain prudent in order to prosper.  By sharing data with credit reference agencies, businesses can improve their own credit rating, which should also be regularly monitored to ensure your business is in the best position to secure deals and finance as required.”

Read all of the Insolvency Index posts here