Thoughts on press releases and insolvency statistics

12 Nov 2010 | Melanie Stern

Most journalists don't even need one hand from which four fingers have been removed to count the number of interesting or useful emails they get from public relations professionals in a month. I'm no different, but this morning something that moved the ticker from "delete immediately" to "at least read to the end and then decide" hit my inbox in the form of a message from K2 Business Rescue, a small consultancy working in the lucrative corporate turnaround world. The subject header "Are Government Insolvency Statistics Concealing the Number of Insolvent Companies?" got my attention, though in the event that wasn't quite what was going on in the piece.

Their corporate guff quoting K2's director Tony Groom confused me because he is paraphrased as saying that "the government's Comprehensive Spending Review in October may reveal the full impact on UK insolvencies" – confusingly written for a release sent to me on 12 November when the CSR was a month previous (perhaps they meant to say that the effects of the CSR may, as they unravel, reveal the full impact?).

And for K2's "no sh*t Sherlock moment", these golden nuggets: "Tony Groom argues that leaving it to the point where the situation becomes critical is leaving it too late. On the other hand, being proactive by planning and implementing remedial measures may just help with survival. Even if the UK avoids a double-dip recession, there is a risk that the UK economy could develop a twin-track economy, with public sector-dependent industries facing higher levels of financial distress than sectors which are less directly linked to government spending cuts," he adds.

"For those companies just clinging on by their fingernails it therefore makes sense to call in a turnaround adviser like K2 Business Rescue, to conduct a thorough review of the business viability, identify any weaknesses and provide a structured plan to help them through the predicted slowdown and avoid being precipitated into a crisis from which there may be no recovery."

I feel so warm and safe!

PR fun aside, I thought the reflections buried inside the PR spiel were interesting enough. Have a look.

As the consequences of the global financial crisis that began in the autumn of 2008 continue, it is reasonable to assume that the numbers of companies in financial difficulties serious enough to precipitate insolvency would be increasing.

However, figures for the second quarter of this year (April to June) released by the UK Insolvency Service in August 2010 show that there were 2,080 companies in England and Wales that were placed into liquidation. These are made up of compulsory liquidations and creditors' voluntary liquidations.

The figures showed a 0.5 percent increase on the previous quarter but a decrease of 19.1 percent on the same quarter in 2009.

Compulsory liquidations were down 9.9 percent on the previous quarter and 21.0 percent on the corresponding quarter in 2009, while creditor voluntary liquidations were up 5.4 percent compared with the previous quarter but down 18.3 percent compared to the same quarter in 2009.

Other corporate insolvencies in the same period (made up of receiverships, administrations and company voluntary arrangements) also showed a decrease, of 14.3 percent compared with the same quarter a year ago.

It would be tempting to infer from these figures that the economy is beginning to recover and the pressure on companies is easing.

It is being suggested, however, that the decline in liquidations is concealing the number of companies in financial difficulties because of a lack of pressure from creditors other than the HMRC (Her Majesty's Revenue & Customs), the only active creditor currently seeking winding-up orders in the courts.

Some commentators argue that corporate insolvencies are still well below the numbers that would normally be expected at this point in the cycle, and the slight quarterly rise in the number of liquidations may signal that conditions are starting to turn against UK companies once again. However, the question is whether this is a normal cycle.

The lower than expected number of insolvencies is ascribed to a variety of proactive measures, HMRC Time to Pay arrangements and bank forbearance, which together have bought time for companies by allowing them to deal with their financial situation.