The number of formal insolvencies in the fourth quarter of 2010 showed a dramatic decrease compared with the same period a year ago, according to the latest figures from The Insolvency Service released today. 

In the fourth quarter of 2010 there were 3,955 company insolvent liquidations compared with 4,457 in the same period in the previous year. This seasonally adjusted figure represents a reduction of 11.3%. There was an even larger fall in administrations from 849 in the last quarter of 2010 to 642 in the last quarter of 2010 which represents a significant 24.4% reduction. Individual insolvencies have also decreased by 13.6% in the fourth quarter of 2010 compared to the same period a year ago.

Dominic Offord, Head of insolvency at Browne Jacobson, said that whilst these figures look encouraging they do not reflect the full picture. Interest rates remain at an all time historic low, inflation is increasing, gas and oil prices are high, there has been the recent rise in VAT and the public spending cuts have yet to bite.

A recent survey by a national firm of insolvency practitioners has revealed that there are 140,000 companies with significant and critical financial problems. 242,000 companies have entered into "time to pay" arrangements resulting in the deferment of £4.2billion tax liabilities. 

Dominic Offord added: "Many of these companies are hanging on by their fingertips and it will only take a small increase in interest rates or a reduction in consumer spending to tip some over the edge. Companies are going to have to manage their cash flow very carefully over the next few months and if they are trading whilst technically insolvent the director should obtain advice to ensure they do not incur personal liability for wrongful trading."

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