BRITAIN is facing a bankruptcy timebomb with a record number of individuals and companies predicted to go bust this year.
Begbies Traynor, the insolvency and restructuring group, reckons more than 35,000 firms could go under this year – equivalent to more than 95 a day. The figure would be 18% higher than during the previous peak in the 1990s crash. Nick Hood at Begbies said he would not be surprised if the number rose to 40,000 by the end of the year.
Begbies forecasts that as many as 125,000 people will go bust this year – well above the 107,000 peak in 2006 – equivalent to 342 people a day. Richard Goodwin, editor of The London Gazette, the newspaper of record that prints personal and corporate bankruptcy notices, said pagination had reached a record last month – averaging 96 pages a day – up from 85 last year and 78 in 2007.
Hood told The Sunday Times: “The rate is accelerating – on a bad day we could see 20 businesses going under a day. Companies [you couldn’t imagine going bust] in the last recession are going to the wall this time round – a Chinese restaurant next to a university campus or a hairdressing salon.”
He added: “It feels much worse than the 1990s – there are much fewer options to rescue businesses today. In the past you could go to another bank or small-business owners could remortgage and use equity from their homes – today that is next to impossible.”
The bankruptcy boom comes seven years after the Labour government tried to remove the stigma of going bust through the introduction of the 2002 Enterprise Act, which made the process much easier.
Critics claim the act created a mood of easy credit with no downside.
In America an average 5,945 bankruptcies were filed each day last month by troubled consumers – the highest level since October 2005.
The news comes as a report released today by Ernst & Young, the accountancy firm, shows quoted companies in Britain issued 117 profit warnings in the first quarter with worse to come.
The first-quarter figure for warnings was the highest since 2001, and the third consecutive three-month period in which there had been more than 100 warnings.
Keith McGregor, restructuring partner at Ernst & Young, said: “It is not just the number of warnings that concerns us. The tone of company statements has also darkened.
“The prospects for 2009 appear asuncertain and as gloomy as at any point in the crisis.”
The highest warning sectors were support services, with 22; media, 13; industrial engineering and software & computer services, with 10 each; and general financial,9.
Ernst & Young said the fact that so many different sectors were being affected reflected the spread of the credit crisis into a full-blown recession.
Also today, Hay Group, the consultancy, predicts more than 600,000 job losses as companies retrench. On the basis of a survey of 140 of the top 1,000 firms, it discovered “unprecedented” cost-cutting which it said threatened to do long-term damage to the economy.
Nine in ten firms plan operational cuts in 2009-10, it found, with a high proportion planning job cuts. A fifth of companies intended a big restructuring of their businesses in response to the recession.
Almost half of large companies plan to reduce headcount by an average of 10% this year.
Source: Times Online