Businesses Do Deals To Avoid Bankruptcy

Companies at risk of going bust are increasingly doing deals with their landlords and other creditors to avoid bankruptcy.

The number of insolvencies among British companies fell by 9.5%, according to credit consultants Experian, dropping to 1,776 in the year to July compared with 1,962 the previous year.

Max Firth, managing director of business information services at Experian, said: "Since March this year, when the insolvency rate peaked at 0.11 per cent, it has remained fairly stable - between 0.08 per cent and 0.09 per cent.

"The lack of any real increase is clearly welcome and this picture is unlikely to change in the near future."

However, insolvency specialists Wilkins Kennedy report that number of Company Voluntary Arrangements (CVAs) have increased by 10% over the past year.

This rise in CVAs - in which companies renegotiate their debts with their creditors - suggests that many businesses are still getting into trouble with Britain's double dip recession lasting longer than many had feared.

British companies entered into 769 CVAs over the year to the end of June compared to 699 the previous year according to Wilkins Kennedy.

The number would be higher (924) if a large number of CVAs by subsidiaries of the collapsed care home operator Southern Cross are included.

Several well known businesses including JJB Sports, Blacks Leisure and Focus DIY have used CVAs over the past year to escape from rental contracts with landlords that have become too expensive to allow them continue trading.

Anthony Cork, partner at Wilkins Kennedy said: "Landlords feel that too much of the pain in a CVA is taken by them and not enough by the other creditors such as the banks or by the company itself."

However many landlords are willing to negotiate more sustainable rents because they fear it would cost more to find a replacement if their tenant goes bust.

Budget hotel chain Travelodge was the latest firm to launch a CVA, announcing a deal last week to walk away from 49 loss-making hotels and write off £700 million of its debts.