Misleading statistics

The latest insolvency statistics appear to paint an improving picture. But is this really the case?

In the last quarter of 2012 there were 3,834 companies that entered into liquidation. That's 11% less than the same period at the end of 2011. There was a corresponding decrease of 14% in respect of administrations, receiverships and company voluntary arrangements.

For individuals there was a decrease of just under 13% compared with quarter four of 2011; down from just over 29,000 to 25,302 at the back end of 2012.

For the record in 2012 there were just short of 21,000 corporate and just over 109,000 individual insolvencies.

On a grander scale, during the last 25 years we have seen on average 1.2% of active registered companies entering into liquidation. In the last quarter of 2012 this was down to 0.7% and the peak was 2.6% in 1993.

On a personal level; in the last quarter of 2012 1 in 405 people became insolvent. Although this figure has dropped recently, from 1in 390 in the previous quarter, it is significantly higher than in 2004 and is not good reading when compared to a year on year level of 1 in 1600.

Overall the figures do show a slight downturn in recent insolvency levels, although the figures are still high when we look at the longer term picture. Perhaps the figures are misleading. In my last article I talked about Zombie Companies; those businesses that exist, but only on a hand to mouth basis and which would previously, more often than not, have folded under the pressure.

If a poorly performing business lacks a sensible, solid plan going forward it is going to find it increasingly difficult to make ends meet and will eventually go bust. I expect the above statistics will worsen to an extent in the shorter term in the lead up to long term sustained improvement. Time will tell.