Latest analysis of Administration and Receivership figures by Deloitte, the business advisory firm, has shown that insolvencies are down by 7% for the twelve months to December 2007, reflecting that for the majority of the year, the UK economy remained relatively healthy, with record levels of corporate finance deals completed and an abundant availability of cheap credit.

Lee Manning, reorganisation services Partner at Deloitte, commented upon the current climate: “The effects of the summer’s credit crunch are beginning to be felt by consumers as we are now seeing  downward pressure on housing prices and tighter credit terms, leading to a reduction in discretionary spend. Until recently there was a relatively positive environment with insolvency appointments in decline and businesses worked together with lenders to restructure and refinance, without an insolvency event occurring. However,” Manning continued: “We are entering a more demanding credit phase where the prospects of solvent rescue will be reduced.”

This year’s figures remain benign, the only sector with a notable increase in appointments (15%), being the Hospitality and Leisure industry. Manning remarked: “There have been a number of factors hampering this sector, including increasing price competition from supermarkets, growing trends of drinking and entertaining at home, and more recently the smoking ban. In addition, non-qualification of any of the Home Nations for Euro2008 will affect those establishments whose forecasts had already built in significant sport fixture related income. We anticipate that the downturn will dent discretionary spend, and that the industry will be hit further.”

On the retail side, Manning added: the Retail sector has so far held up well, after several years of bumper profits and good trading conditions.  However the position of the weaker performers will start to deteriorate as drops in discretionary spend coupled with fierce price competition materialise.”  Appointments in this sector declined by 15% in 2007 but we are expecting to see a reversal of this trend in 2008.

Whilst, the transport and communications sector is predicted to see an upturn in insolvency. Manning added: “The sector is being squeezed by increasing fuel prices, and may see pressure on volumes and margins in line with any reduction in economic activity.”

Looking at the coming year, we can expect to see the effects of the economic downturn materialising in a number of sectors:

• Appointments in the property sector remained steady in 2007. However, we expect tighter credit conditions and falling house prices in both the residential and commercial sectors to impact property developers (particularly in buy-to-let), the construction trade and related financial service providers; specifically, mortgage brokers and estate agents.
• Appointments over structured investment vehicles (SIVs) have accounted for a few of the recent financial services appointments, including Cheyne and Rhinebridge, SIVs over which Deloitte was appointed Receiver. However, many banks are taking these vehicles onto their balance sheets and it is conceivable that while this sector will struggle in the coming year that this may not show itself in insolvency figures.

On the regional numbers, we can see that 41% of all appointments occurred in London & South East, however this is a 5% decrease against the previous year. More significant decreases in appointments occurred in East Anglia with a drop of 32%, and the South West with a drop of 22%. Conversely the North East saw an 11% increase from 46 to 51 appointments.

We move from a positive beginning last year, to a difficult start to 2008; the effect of the economic downturn on the insolvency figures will be gradual as it spreads through the various industries. We look to our next analysis for early signs of patterns that are to emerge throughout 2008.

Ends

About Deloitte
In this press release references to Deloitte are references to Deloitte & Touche LLP which is among the country’s leading professional services firms, providing audit, tax, consulting and corporate finance services. Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein whose member firms are separate and independent legal entities.  Neither DTT nor any of its member firms has any liability for each other’s omissions.  Services are provided by member firms or their subsidiaries and not by DTT.  Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.  The information contained in this press release is correct at the time of going to press.