For TMA (UK) is warning that there is still an acute shortage of bank lending to businesses, exacerbated by the increasing cost of available credit which is significantly above the base rate.
This affects both the capacity of consumers to demand goods and services and the ability of business to finance the supply, meaning that perfectly viable companies will continue to go under because they are denied access to the operating finance they need.
TMA was responding to Insolvency Service figures for the second quarter of 2009, which show 5,055 compulsory liquidations and creditors' voluntary arrangements – up only 2.9% on the previous quarter, but up 39.2% on the same quarter in 2008. Receiverships, administrations and company voluntary agreements were up 22.7% on the same quarter of 2008 at 1,529.
Administrations appear to have levelled out at 1,027 – down from 1,311 in the first quarter of 2009 and up 9% on the second quarter of 2008. But TMA believes that the reduction in the number of pre-packs and phoenix company formations is a sure sign that the economy is contracting and masks the fact that many struggling companies are choosing to pre-empt the need for formal administration and are simply winding up, making their employees redundant and liquidating their assets.
TMA (UK) President Tyrone Courtman of Nottingham-based Cooper Parry said: “The Insolvency Service figures show that the number of companies closing down is still on the increase, and the reason for that is straightforward: there is just not enough liquidity in the system.”
And he warned that unless the availability of credit improved, the eventual recovery would see a second wave of insolvencies as companies started overtrading – sourcing new stock to satisfy rising demand, but without adequate finance.
“Don't be fooled by apparently encouraging signs in some sectors of the economy,” he warned.
“Down on the nation's shop floor we see cash-starved businesses continuing to disappear, and unless the continuing liquidity crisis is tackled this recession is going to have a very long tail indeed.”
