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Business distress levels in the North fell in the second half of 2012, with over half of all companies now in a stable condition, according to the latest Business Distress Index from the insolvency trade body R3.

The figures reveal that 15 per cent had suffered declining sales, down from 32 per cent in the first half, 32 per cent had seen a fall in profits (down from 47 per cent) and eight per cent had made redundancies (down from ten per cent).

Only three per cent said they were struggling to pay the bills (down by four points) while just six per cent were regularly using their maximum overdraft (down 14 points). Fifty-eight per cent of businesses – the highest proportion all year – showed no signs of distress at all.

Jeremy Oddie, North West regional chair of R3 and head of recoveries at Mitchell Charlesworth, said: “It’s encouraging to see that the majority of businesses in the North are now in a stable condition. However, the fact that more companies have been reporting falling profits than falling sales indicates that pricing is critical to survival.

“Another concern is that although fewer businesses are struggling to pay bills, nine per cent admit to paying interest only on their debts. A significant number of businesses are being kept alive by the forbearance of banks and favourable interest rates. Any change in circumstance could easily push them into insolvency.

“The fate of these businesses will have a major impact on the UK’s economy. If creditors become more rigorous in their pursuit of debts there is likely to be a sharp rise in business failure. This may clear the ground for a quicker return to growth and free up capital for other more viable businesses. However if major creditors continue forbearance we could see a continuous period of low growth.”