Early warning signs vital for managing the risk of bad debt caused by hidden insolvencies
Nottingham, 19 November 2012 – Experian®, the global information services company, has today published its latest BusinessIQ analysis suggesting that an average of £4.7billion1 in unpaid debt may be left behind every year by UK firms that simply choose to close down2.
Experian’s BusinessIQ analysis reveals for the first time that among the business closures that were until today thought to be benign, billions of pounds worth of debt is left still owing to existing firms.
The analysis looked at millions of supposedly solvent firms that have decided to close down voluntarily and have applied to be struck off the Companies House register since 2000. It found that each year around 13 per cent of these firms had debts that exceeded their total assets just before they closed.
Experian’s BusinessIQ analysis reveals that each year in addition to the billions in debt left behind by firms that are unable to pay their creditors and go through official insolvency proceedings, another 50 per cent as much again may also be left behind as debt by the 13 per cent of solvent companies that have voluntarily chosen to wind up.
For example, in 2011 the analysis reveals that hidden among the 300,000 firms that had wound up voluntarily, 36,000 had debts amounting to £5.9billion3. In comparison, 21,000 firms were declared insolvent4 during the same year with insolvency practitioners involved and the total estimated debt left behind by them was £11.7billion5.
Micro firms often wind up for reasons as simple as retirement or the opportunity to work in another company as an employee, so have little impact on other firms and leave behind little or no debt.
However, some of these businesses choose to close down without informing creditors or settling debts. Going back to 2000, Experian’s BusinessIQ analysis of the last filed accounts of these firms at the time of winding up has revealed that 13 per cent of businesses may have been struggling and decided to wind up without settling debts. During times of recession, Experian’s has found that the number of firms winding up voluntarily increases significantly.
The analysis from Experian’s BusinessIQ shows that individually these businesses often leave behind relatively small debts (around 35 per cent have under £10k of total assets). However, with the sheer volume of businesses that have wound up and left debt behind means that in reality it can amount to billions of pounds each year.
Max Firth, Managing Director, Experian Business Information Services, UK&I said: “Most firms that apply to be struck of the Register tend to have little or no debt owed to other businesses. However, there are some that do and for the first time, we have been able to show that hidden among these seemingly harmless business closures is a level of debt that has previously gone undetected.
“Failing to detect signs of deterioration and not reacting before a customer or supplier gets to the insolvency or dissolution stage, can be crippling for some firms. Monitoring financial health of other firms is more than just good business practice at any time, but clearly more critical in today’s climate where many businesses are experiencing cash flow difficulties.”
Underpinned by Experian’s unrivalled business data, which includes the biggest payment performance data on the market, BusinessIQ enables firms of all sizes to quickly and accurately monitor and manage all the risks and opportunities associated with customers and suppliers, helping businesses to guide their way through financial challenges and minimise risk.
For more information visit: http://www.experian.co.uk/businessiq/what-is-businessiq.html
Experian carried out an analysis of the last filed accounts of firms that have voluntarily wound up since 2000. Firms that have wound up voluntarily are not business insolvencies as the majority wind up with very little or no debt.
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Ms Serj Heera
Head of PR, Credit Services0115 992 2773/07837 652169
Experian is the leading global information services company, providing data and analytical tools to clients around the world. The Group helps businesses to manage credit risk, prevent fraud, target marketing offers and automate decision making. Experian also helps individuals to check their credit report and credit score, and protect against identity theft.
Experian plc is listed on the London Stock Exchange (EXPN) and is a constituent of the FTSE 100 index. Total revenue for the year ended 31 March 2012 was US$4.5 billion. Experian employs approximately 17,000 people in 44 countries and has its corporate headquarters in Dublin, Ireland, with operational headquarters in Nottingham, UK; California, US; and São Paulo, Brazil.
For more information, visit http://www.experianplc.com.
1Detailed analysis of the last filed accounts of all solvent firms that voluntarily wound up since 2000. Estimated debt left behind is based on the extent by which the total debt exceeded the total assets in the last filed accounts prior to being dissolved.
2Firms that choose to close down or be struck off the Companies House Register. They usually have little or no debt and are not classed as business insolvencies. See Companies House information: http://www.companieshouse.gov.uk/infoAndGuide/windingUpCompany.shtml
3Detailed analysis of the last filed accounts of all solvent firms that voluntarily wound up during the year 2011. Estimated debt left behind is based on the extent by which the total debt exceeded the total assets in the last filed accounts prior to winding up.
4Business insolvency occurs when businesses are unable to pay their debts when they are due.
5Detailed analysis of the last filed accounts of all firms that were declared insolvent during the year 2011. Estimated debt left behind is based on the extent by which the total debt exceeded the total assets in the last filed accounts prior to insolvency.