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Large rise in winding up petitions

Monday 16th May 2011
The last couple of months have seen a significant increase in the numbers of Winding Up Petitions presented to the High Court.

Tony Groom, CEO of K2 Business Rescue, has been monitoring the number of new petitions being filed, the number of petitions being heard and the number of orders being made and notes that since April 2011 all three have increased:

The figures are quite startling when compared with the average of 92 Compulsory Winding Up orders made per week during the last quarter of 2010.

Some 108 WUPs were filed during week commencing 28 February and the numbers have climbed throughout March and April.

The number of petitions that were filed in March were: 109 during the week commencing 7 March, then 85 in the w/c 14 March, followed by 118 and 117 during the next two weeks.

The total number of WUPs filed in March was 429. The weekly figures for April support the claim of a significant increase where weekly figures for April were 142 in w/c 4 April, then 42, 195, and 183 in the next three weeks, totalling 562 in April. This represents a 31% monthly increase.

The published lists contain only the raw numbers of petitions presented without any detail on the size of company, size of debts or the identity of the petitioner.

In February K2 Business Rescue reported that UK Insolvency Service figures for the last quarter of 2010 showed a decline in total compulsory and voluntary liquidations, continuing a downward trend.

However, closer examination of these numbers revealed that there were 1200 compulsory liquidations, up 5.8% on the previous quarter but down 9.9% on the corresponding quarter of 2009, while 2755 creditors' voluntary liquidations, were down 2.6% on the previous quarter and down 11.8% on the corresponding quarter of the 2009.

Compulsory liquidations were therefore showing a very slight upward trend after the previous two quarters, when they were down 3.2% on the previous quarter and in Q2 were down 9.9%.

Normally, hearings in the High Court would follow two to three months after a petition has been presented.

Groom's experience has been that many companies in difficulty have been hanging on by their fingernails while hoping their sales will pick up.

While the picture and possible explanations are unlikely to be clearer until the third quarter of this year, when the quarterly insolvency statistics will be revealed, the increase in the number of petitions does invite some commentary.

The increase in the numbers of petitions is likely to have been influenced by the enduring restrictions on cash with businesses trying to collect in their overdue debts. Furthermore, a lack of confidence and concern that some companies will not be around to pay their debts may have encouraged creditors to act on the assumption that they will want to be first in the queue to be paid rather than become a creditor in an insolvency.

Patience is also wearing thin among many creditors and especially HMRC who have been stretched to the point where issuing a winding up petition for many has become the only option for chasing payment. Indeed the number of companies that settle their debts only after receipt of a WUP would suggest that it is an effective debt recovery tool; in spite of claims that this is an abuse of process.

In due course K2 Business Rescue said we can expect to see a further increase in the number of petitions when P35s (Annual PAYE Returns) have been filed with HMRC, by the deadline of 19 May. These returns will highlight any arrears of PAYE that are outstanding and, if it turns out that companies have continued to accrue HMRC arrears, WUPs will follow.

In view of the trend, showing the numbers of compulsory WUPs escalating, it seems possible that they may overtake the previously historically higher numbers of voluntary liquidations as creditors run out of patience.

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Mike Jones

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