In welcome news for the business community, corporate insolvencies are down according to the Insolvency Service. There were 4,082 compulsory liquidations and creditors’ voluntary liquidations in total in England and Wales in the first quarter of 2010 (on a seasonally adjusted basis). This was a decrease of 8.4% on the previous quarter and a decrease of 17.8% on the same period a year ago. Company Voluntary Arrangement (CVA) numbers have remained stable and have been seen as a useful rescue tool.

However, for people in the industry there is a feeling that the figures are only lower due to the HMRC “time to pay” policy where businesses can negotiate very good terms to pay VAT and PAYE owing. The Begbies Traynor Red Flag Alert backs this up as it has reported an increase in businesses facing financial problems that have not been reflected in the insolvency figures. The significant debts owed by businesses to government have not been called in for now.. As pressure increases to pay back the deficit it is likely that there will be more corporate failures going into 2011. As the economy improves there will be opportunities for investors to take advantage by buying up struggling companies to increase market share. For a list of struggling companies we have published our list of businesses facing winding-up petitions.

The UK’s retail sector faces another “bloodbath” on the high street next year, according to insolvency specialists. They point to decreased spending and rising unemployment as reasons to expect a wave of administrations echoing the events of early 2009.

In spite of improving sales figures and a boost in sentiment, 86 per cent of insolvency practitioners polled by industry body R3 believe this year’s drop in spending will prompt the collapse of more retailers after Christmas.

Another factor singled out for the predicted disappearance of over 20 household names is creditors “biding their time” until after the peak trading period before they call in loans. January’s VAT increase is a further cause of pessimism for retailers.

“While it would be comforting to think that the worst of the downturn is over, it’s worth remembering that insolvency peaks after a recession ends,” remarked R3 president Peter Sargent. “We urge retailers to seek advice early when there is a better chance of rescue, rather than desperately clinging on, hoping that Christmas will cure all ills.”

In the opening months of 2009, around 22 high-street retail staples went into administration, including Woolworths, music outlet Zavvi, childrenswear chain Adams and tea and coffee merchant Whittard of Chelsea. For up-to-date information on businesses for sale and in administration take a look at our news section.

–>Latest retail businesses for sale.

There has been a great deal of fuss in the press about the “pre-pack” administration process not giving a fair deal for the business’s creditors and accountancy firms benefiting in the form of high levels of fees. Despite many attempts by the industry to highlight the benefits of a “pre-pack administration”, it seems that the process is going to be looked at in detail by the Office of Fair Trading.

The investigation is aiming to look at fee levels and recovery rates, following concerns about what’s returned to creditors and how much the preservation of jobs in the insolvent business has cost. If the OFT finds against the larger accountants’ fee levels then it is likely there will be more work for the next tier of accountancy firms.

It looks as if the whole insolvency industry is going to have an interesting 2010. This is because business groups, such as the Forum of Private Business, have asked the OFT to delve into “phoenix companies” as well.

For those not familiar with the processes a “phoenix company” is simply a new company that has bought the assets of an insolvent company and carries on in the same trade as insolvent company, often with the same name and most, if not all, of the directors from the failed business.
Complaints against this process focus mainly around accusations that the assets of the failed company have been transferred out at below market price.

However, a “pre-pack” is a deal for the sale of an insolvent company’s business (and/or assets) which is put in place before the company goes into a formal insolvency process, usually administration. The deal for the sale of the business will usually have been worked out before the insolvency practitioner (IP) is formally appointed, and is then rapidly executed once the appointment is made.

The Office of Fair Trading’s senior director, Clive Maxwell, commented: ‘We want to identify any potential problems within the corporate insolvency market to ensure that firms and practitioners are competing freely and that the market is working well for the end consumers. Efficient insolvency services are an important component of a modern market economy.’

Following vocal complaints by groups of aggrieved creditors, any future pre-pack administrations will be closely scrutinised by the UK Insolvency Service.

Pre-pack administrations have proved to be a fairly rapid way for companies in severe financial difficulties to shake off debts and burdensome assets and continue trading.

But several high-profile pre-pack business administrations, including Whittards of Chelsea and Tom Hunter’s USC have highlighted the simple fact that company creditors are simply shrugged off and left in the dark about what is going on.

This month a new code of practice was launched by the government with the intention of making the whole process more transparent, especially to creditors. If insolvency practitioners are putting a pre-pack deal together for businesses in administration, then creditors must be kept informed both before and after the process as to who is is dealing with the administrator, what the terms of the deal are and what was involved in selecting the individual(s) or organisation taking over the running of the business.

Yesterday’s statement to parliament by the deputy head of the UK Insolvency Service, Graham Horne, was the first clear indication that the service was going to be serious in the way they policed the code. He said, “We are going to get every statement into our office and see the administrator has followed the spirit”, adding that they would prioritize the policing of pre-packs.