Business Payment Support Service (Time to Pay): October 2010
“The number and value of Time To Pay arrangements has decreased dramatically during 2010, reflecting more favourable conditions for businesses post-recession. The scheme has worked well in preventing an expected spike in corporate insolvency numbers which typically follows the end of a recession.
“However, R3 is still concerned about the number of ‘zombie’ businesses within the Time to Pay scheme - businesses that are only able to service debt but not fund expansion. Today’s figures do not show the number of businesses asking for ‘repeat’ or ‘renegotiated’ arrangements. If a company asks for more than one Time to Pay agreement or a further extension on their agreed repayment plan, this indicates their financial difficulties may be extremely serious. We understand that the number of repeated deferrals increased considerably from around 33,000 in September 2009 to 79,000 by early 2010. Without new figures, it is impossible to tell how many companies under the Time to Pay banner are severely distressed and at risk of insolvency.
“Worryingly, there are also no available records of how many businesses enter formal insolvency having been in a Time To Pay agreement. Towards the end of last year, two thirds of Insolvency Practitioners had seen companies moving from a Time to Pay agreement into formal insolvency. While the majority of companies in Time to Pay surely use this period as a useful breathing space, a worrying minority may be unable to get their house in order. The rejection rate for Time To Pay requests remains at just 5.2% for 2010 under the scheme so there is a low barrier to entry.
“Our members, the UK’s insolvency practitioners, are predicting an increase in corporate insolvency numbers next year to 27,500 insolvencies (in 2009 the figure was 26,400) and while nearly 400,000 businesses have relied upon on delaying outstanding payments to the crown, we should not assume 2011 will automatically be smooth sailing.”
R3 Press Office