Is ‘cease to trade’ the real factor behind falling insolvency stats?…
“This morning The Insolvency Service reported that the last three months of 2012 saw a 3.3% decrease in corporate insolvencies on the previous quarter, and 10.7% less than the same quarter a year ago. Regardless of what the statistics say, they fail to reveal the entire insolvency picture. This is because many SMEs find that the costs and complications associated with registering as insolvent are too high and as such, choose the easier option of ‘ceasing to trade’.
The cost of formal insolvency for small businesses is a minimum of £5,000 and often significantly more. Some businesses may also wait until a creditor winds them up or the Government shuts them down as a result of not having filed accounts for several years – again, this is behaviour that could really be skewing the insolvency statistics.
With many banks still reluctant to lend to SMEs, small companies who are struggling with their finances are simply choosing to shut up shop and walk away from their commitments. At IGF, over the past few years we have found that ‘cease to trade’ has become more and more common amongst UK SMEs. This is something that does not show up in any of the insolvency statistics and is bad news for both creditors and businesses alike.”
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