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Investing in distressed businesses – opportunities in the new environment

Despite suffering the worst recession since the Second World War, rates of corporate insolvency in England and Wales are low by historical standards.  Looking back over the last 25 years, the rate of liquidations as a percentage of active registered companies peaked at 2.6% in 1992, and stood at an average rate of 1.2% over the whole period.  In 2010, however, the rate stood at 0.7%.  Why is this and what are the implications for businesses?

Explaining the paradox

It is true that formal insolvencies tend to peak when an economy is recovering from recession – a time when many businesses are suffering the strain of an increase in trade, and prices of realisable assets are on the rise.  It is also true that low interest rates mean that many weak companies can survive for longer.  However, those factors do not explain the extent of the reduction in corporate insolvencies. This reflects deeper structural changes in the recent downturn in the way that distressed businesses are dealt with in England. More…