Corporate insolvency 'high risk in 2008'

News Article - 23 May 2012
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The effects of the credit crunch "are beginning to bite" on UK business growth, PricewaterhouseCoopers has claimed.

According to the firm, although the number of corporate insolvencies decreased in 2007, the rate of slowdown lowered in the last quarter to 3.6 per cent, compared to 7.9 per cent for the whole year.

"Lower levels of confidence mean funders and management are less likely to attempt riskier turnarounds," said Mike Jervis, partner in the firm's Business Recovery Services practice.

"If stakeholders aren't willing to take risks with a distressed business, the spiral will simply get longer and of course, more painful," he added.

Mr Jervis claimed that a drop in consumer demand, pension deficits, over-gearing and fraud were all major factors in corporate insolvency, adding that recent issues of underperforming assets and equity trouble have added to this.

However, he said that a flexible approach taken by stakeholders to control costs by refinancing had helped lower insolvencies between 2006 and 2007.

Andrew Ratcliffe, an audit partner at the firm, recently told the Financial Times that companies will be required to provide more evidence of available funding to auditors this year.

He explained to the newspaper that the country's liquidity problems had led to increased diligence from accountants.

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