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Official insolvency statistics released today show corporate insolvency levels are flattening off though pressure remains on the property sector, according to the insolvency trade body R3.

The figures for the third quarter of 2011 show there were 673 administrations – down by 3.1 per cent on the previous quarter but a rise of 6.3 per cent on the same period last year.

Jeremy Oddie, North West chair of R3 and head of recovery at accountants Mitchell Charlesworth, said: “The number of administrations is flattening off but is still higher than 12 months ago. This, together with the latest 0.5% growth figures, suggest that it will be a slow, sluggish recovery that is likely to take between three and five years.

“Insolvency numbers remain low compared to the levels after previous recessions, partly because the value of business assets is too low for creditors to pursue – they simply will not cover the debts they are owed. Consequently businesses are being allowed to stay afloat. When we see a period of sustained growth, creditors are likely to become more aggressive.

“R3’s Business Distress Index revealed nearly one in three North West businesses had suffered a drop in sales and almost two in three were seeing decreased profits. While this may not be enough to push businesses over the edge, a prolonged period of distress will trigger an increase in formal insolvencies.”

Pressure on the property sector
The figures also show the number of receiverships has been rising for four consecutive quarters to stand at 374 – 7.2 per cent higher than a year ago.

Jeremy Oddie adds: “Receivership is a process now almost exclusively used in cases involving property businesses. The vast majority of these will be companies or individuals with a property portfolio who have defaulted on their mortgage repayments.

“The figures reflect the intense pressure on landlords, particularly those with retail properties. Many of them will have borrowed money some time ago when interest rates were higher. Not only are they paying over the odds, they are also facing the loss of rental income as tenant companies collapse or properties are left standing empty.”

Personal insolvency decreases
In total, personal insolvencies decreased to 30,219 – down 11 per cent on last year, although within that, the number of IVAs and DROs which are alternatives to bankruptcy, have increased slightly.

Jeremy Oddie adds: “It is encouraging that personal insolvency has decreased following the peak in early 2010 but it would be unwise to rule out further increases to come. These figures do not give us the full picture as it does not show the numbers in debt management plans, nor the number of individuals struggling without help.

“If inflation continues to rise and wages remain stagnant we may see a rise in personal insolvencies. Higher energy prices are likely to bite in the coming months and Christmas will be another crunch time for households.”