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Real estate the worst sector for insolvency

19 September 2011

Real estate the worst sector for insolvency

Real estate has become the worst-affected sector for insolvency after making up 35% of total administrations in the second quarter of 2011, according to Insolvency Service figures.

The sector accounted for 243 of the 695 administrations recorded during the quarter and also experienced a 25% quarterly rise in company voluntary arrangements (CVAs) compared to the first quarter of this year.

Despite the quarterly rise, real estate administrations were still down from a peak of 50% of total administrations recorded in the final quarter of last year, while administrations across all sectors fell 11% from the 782 recorded in the first quarter of 2011.

David Costley-Wood, restructuring partner at KPMG, said: "Real estate is the only sector to have seen a significant increase in administration appointments, and now makes up the highest proportion of administrations, highlighting the fundamental issues within the property industry.

"Inappropriate business models could, in our view, take as long as a decade to resolve but - at the very least - the severity of distress has eased off."

The Insolvency Service also revealed that corporate insolvencies increased by just over 1% during the second quarter 5,465, compared to the previous three months, as the economy stuttered.

The number of compulsory and creditors’ voluntary liquidations reached 4,233 in the second quarter, which represented a 2.7% increase on the previous quarter and a 4.4% rise on the same period last year.

This total comprised 1,290 compulsory liquidations, up 19.8% on the previous quarter, and 2,943 creditors’ voluntary liquidations, which fell by 3.3% during the same period.

PricewaterhouseCoopers (PwC) said that its analysis of the statistics do not reflect the entire picture of UK plc.

David Chubb, partner in business recovery services at PwC, said: "It seems that there may be a lot of businesses closing down without the need for an insolvency process because they are making the conscious decision to cease trading before the business reaches the point of no return."

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