Company insolvency rate ‘is lower in 21st-century recessions’

Published on October 5, 2012 by Crawfords Accounting

The company insolvency rate in recent recessions in the UK has been much lower than it was at the end of the 20th century, according to asset management firm Schroders.

Azad Zangana, European economist at Schroders, has been looking at the seemingly contradictory state of the British economy, given relatively robust employment figures during the recent recessionary cycle.

Unlike the late 20th century, when the company insolvency rate spiked during the “relatively shallow” 1990s recession, the 21st century has seen the opposite trend, with a low insolvency rate even during the worst of the current economic turbulence.

This has, in turn, meant a low unemployment rate, compounded by more individuals becoming self-employed or accepting part-time positions that spread the same amount of work across more employees.

“The low rate of insolvencies could be to blame for the lack of job losses,” the economist suggests.

“Unlike the sharp rise in insolvencies seen during the relatively shallow recession of the early 1990s, the two most recent recessions were nowhere near as destructive.”

For companies seeking insolvency advice, some of the potential options to ensure survival include renegotiating bank loans, as well as simply making the most of the historically low Bank of England base rate on any relevant borrowing.

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