Company failures lowest since 2008

Company failures have plunged to their lowest level since early 2008 in a boost to hopes over the health of Britain's businesses.

Company liquidations in England and Wales fell 15.8% year-on-year to 3,619 in the first three months of 2013, and were down 5.3% on the prior quarter, according the Insolvency Service.

But while the number of liquidations was the lowest since the second quarter of 2008, some insolvency experts warned there might be worse to come if the plight of "zombie" companies - kept afloat by record-low interest rates - worsens.

The liquidation rate of 0.7% of the 2.6 million active companies in England and Wales was down from a peak of 2.6% in 1993 and below the average of 1.2% over the past 25 years.

Alan Hudson, partner and head of restructuring at Ernst & Young, said the figures are "another sign that the UK economy is finally starting to move in the right direction". Data last week showed the economy grew by 0.3% in the first quarter of the year.

Other corporate insolvencies, such as receiverships and administrations, fell 27.5% year-on-year to 935 in England and Wales. Notable administrations during the quarter include entertainment retailer HMV, camera store chain Jessops and youth fashion chain Republic. Liquidations in Scotland plunged 70% to 113 year-on-year, and were down 50.5% in Northern Ireland to 55.

Graham Bushby, restructuring and recovery partner at Baker Tilly, said: "While on the face of it, a continued decline in formal corporate insolvency is good news for the UK economy, zombie companies - those that are just about able to survive by servicing the interest on their loans - remain a feature of the UK corporate landscape."

Compulsory liquidations - where a court enforces a winding-up order - rose 11.8% from the final quarter of 2012, which Mr Bushby said could suggest HM Revenue & Customs getting tough on unpaid tax bills.

Companies have been helped by the cheaper cost of finance, held down by the Bank of England's record-low benchmark rate of 0.5%, plus other stimulus measures such as the state's Funding for Lending Scheme.

But Stewart Baird, director of business investment company Stone Ventures, said: "A relatively benign insolvency landscape should not be mistaken for an economy in a state of good health. There is something artificial about the current liquidation rate and I suspect we may see corporate insolvencies start to rise again at some point."

High Street casualties

High Street casualties