Compulsory liquidations drop, but problems loom

Despite this fall, there has been a substantial increase in the use of CVAs as a corporate rescue procedure.

Phil Pierce, a partner in the Leeds office of professional services firm Baker Tilly, said: "The decline in the number overall was expected as creditors continue to show empathy for the economic challenges faced by UK plc.

"Looking at Leeds specifically, we see that there were 33 compulsory liquidations during the last three months compared to 58 during the same period last year. In the previous quarter there were 69.

"What is interesting is the substantial increase in the use of CVAs, a mechanism which ensures the company continues to trade and the survival of the business.

"The process normally involves formally agreeing a repayment plan with its unsecured creditors, allowing a greater return compared with liquidation or administration.

"It also is favourable to secured lenders as they are not normally negatively affected by this process. CVAs have been commonly used in the retail sector throughout the recession and we are now seeing these more frequently applied across other industries.

"Overall, there is still a great deal of uncertainty and today's figures don't appear to tell the whole story.

"We expect further problems ahead, especially as suppliers and contractors to the public sector suffer further knock-on effects of the well-publicised spending cuts.

"The total number of personal insolvencies during the same period has increased compared to the same period last year, although they are slightly lower than the record numbers witnessed in the previous three months.

Mr Pierce said more people are choosing the Individual Voluntary Arrangement option rather than the bankruptcy route. Statistics in Leeds revealed that bankruptcies fell by 13 per cent compared to the same period last year.

Mr Pierce added: "This indicates that people are taking proactive steps to deal with their debt problems rather than burying their heads in the sand."