The economic crisis has increased the rate at which firms are becoming insolvent, the Conservatives heard today.
Speaking at a fringe event at the Conservative Party conference in Birmingham, Stephen Law of insolvency trade body R3 said that while the number of insolvencies had fallen from 2009 to 2010 and the scale had not been as high as in previous recessions it was likely this was the “calm before the storm”.
Interest rates had been historically low and the time to pay initiative had allowed businesses the breathing space they needed to sort their affairs out, he stated. The attitude of secured creditors, such as banks, was also different and this group were more willing to allow firms the time they needed to recover, he said.
He warned that 2010 would see the rise in VAT which would force up interest rates and public sector cuts would reduce income for small firms.
Law also noted that HMRC was rolling back the time to pay initiative.
All this coming after the end of the recession meant that firms did not have the reserves needed to withstand the financial pressures, he said. Therefore, R3 members believed that there would be more insolvencies in 2011 than there had been in 2009 – the peak year of the recession so far.
Law said that R3 wanted to see changes to the law to prevent suppliers taking to court businesses that attempted to trade through insolvency.
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