Lowest number of IT distribution firm insolvencies since recession began, reports credit agency

Graydon UK said that 57 firms in the IT distribution sector experienced insolvencies during the fourth quarter period, according to a report by technology news website The Channel, which is part of The Register.

In the same three-month period in 2011, 88 IT distribution businesses experienced an insolvency event, the agency said. The 35% reduction from the 2011 figures to those for Q4 2012 is representative of the overall fall in numbers of insolvencies that are occurring, it said.

"This was a significant dip," Alan Norton, head of intelligence at Graydon, said, according to The Channel's report. "Overall insolvencies are on a downward trend - we are at the lowest level since the first quarter of 2008."

Of the 57 cases where IT distribution firms went insolvent in the fourth quarter of 2012, 31 involved voluntary liquidations, seven compulsory liquidations and a further 19 involved firms going into receivership, Graydon said, according to the report.

Norton said that if the Bank of England were to increase the base rate of interest then more businesses could find it difficult to survive.

"If interest rates rise there could be trouble ahead, some firms have high levels of borrowing in relation to their profits," he said, according to The Channel. "Resellers must be thinking about the financial structure of their business."

According to the latest official figures on insolvency levels, covering the period from July to the end of September 2012 and published by the Insolvency Service in November, 3,971 companies in England and Wales were liquidated in that third quarter period.

The figures showed a decrease of 2.8% on the previous quarter and a drop by 6.6% in the number of similar procedures over the same period in 2011. There were an additional 986 corporate insolvency events, including administrations and company voluntary arrangements (CVAs), in the same period, a decrease of 21% on the same period a year ago.

At the time insolvency law expert Richard Williams of Pinsent Masons, the law firm behind Out-Law.com, said that although the sharpest drop shown by the figures was in the number of administrations "no-one should assume that the trend will continue downwards".

"The current lull is largely down to a combination of low interest rates and the current approach of lenders, which is to prefer to manage their distressed portfolios rather than to enforce and make provisions," Williams said. "The future remains bleak for the many thousands of 'zombie' entities that are currently being kept afloat by their lenders on the basis of 'Hobson's choice'."