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Informal Corporate Insolvencies in UK Increase by 28%

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According to research by insolvency trade body R3, the number of informal corporate insolvency procedures in the UK has jumped from 139,594 in 2010-2011, to 178,996 in 2013-2014, a 28 per cent rise.

Being informally "struck off" is used by companies who have ceased doing business and have settled any debts, and have become dormant or are no longer trading.

The research may explain why the number of formal insolvency procedures appeared lower than expected, with companies opting for the informal process of being removed from the Companies House register instead. The new data therefore provides a more realistic picture of company closures since the recession.

The Deputy-Vice President of R3, Andrew Tate, said: "Ordinarily, insolvencies rise following a recession, due to problems like 'over-trading' during recoveries or as a delayed impact of the recession itself. Since the 2008 recession, however, insolvencies have fallen.

"The phenomenon of 'zombie businesses' – businesses that survived due to the unique circumstances of the last recession but had little chance of long-term recovery – could partly explain lower than expected insolvency numbers, but falling numbers of 'zombie businesses' have not been matched by rising insolvencies. It may well be that many of the UK's 'zombie businesses' have been just removing themselves from the Companies House register rather than opting for a formal insolvency procedure", Mr Tate explained.

Although for companies who have no assets to distribute to creditors "striking-off" a company is a good idea, creditors may object to this procedure if they feel necessary to see their interests better served by a formal insolvency procedure instead. This could be the case where a company has hidden assets which should be properly investigated by a liquidator.

Research also shows that an increasing number of creditors are choosing to take this path, with objections to "strike-offs" rising by 38 per cent between 2010-2011 and 2013-2014, which is the equivalent of one objection for every 74 applications. That being said, the number of objections still seems relatively low, suggesting some creditors perhaps aren't aware of their rights.

Furthermore, the Jackson reforms - set to become law in April 2015 - will make it harder for insolvency practitioners to return money to creditors from insolvent companies' directors. Commenting on the reforms, Mr Tate also said that "creditor interests risk being undermined by this Government's proposed changed to civil litigation funding" and will mean that "up to £160m a year of creditors' money could stay in directors' hands following insolvencies".

Contact Us – UK Bankruptcy & Company Insolvency Litigation Claims

Whether you wish to commence legal proceedings or challenge those that are being brought against you, our specialist insolvency team can guide you through the procedures. Further, if are worried about the costs involved, Advantage Litigation Services have the skills and expertise to help you find a way of funding commercial litigation without risking your personal finances or those of your business. Click here to contact us today or call 0800 160 1298 to see how we can help.

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