With the credit crunch posing a major threat to businesses caused by a lack of lending, the government and the bank of England has been keen to ensure much is done to get the lenders top supply sufficient finance to firms to help them invest and grow.

The motivation behind this was to avoid one of the elements of the Great Depression – that of firms collapsing because of a lack of bank lending. This way, it was intended that firms who might otherwise be facing a winding up order would instead be enjoying positions of comparative strength and security.

And last year saw banks and the government agree the details of Project Merlin, aimed at achieving precisely this aim. Under terms signed up to on February 9th 2011 by the big five banks, a minimum total of £190 million was to be lent to businesses, of which £76 million was to go to small and medium enterprises (SMEs).

The Bank of England's figures have now shown that the project has both succeeded – and failed. While the overall level of gross lending hit £214.9 billion, the tally for lending to SMEs was only £74.9 billion.

As a result, many firms that might have found themselves in a more secure position could now be facing the threat of going to the wall – if they have not already done so.

Speaking to the BBC, Andrew Cave from the Federation of Small Businesses said: "The Merlin targets have failed."

He added: "Talking to our members, 30 per cent of them say they missed a growth opportunity because they weren't able to access finance at the right times, so there is still a problem."

So with SMEs apparently failed by Merlin, the task falls to the government, Bank of England and high street lenders to plot a way forward.

And the survival of many small firms – as well as the success of others – may depend on efforts to develop chancellor George Osborne's new plan of credit easing being more successful in delivering the finance they need.

The number of corporate insolvency cases in England and Wales was up in the final quarter of 2011, new data has shown.

Figures published today (February 3rd) by the Insolvency Service revealed that the tally of business failures was 0.4 per cent up on the third quarter, with the total of compulsory liquidations and creditors' voluntary liquidations reaching 4,260.

This was also 7.2 per cent higher than the figure for the same period in 2010, which may suggest that for many businesses, surviving the recession was something they could manage, but that they still needed a stronger recovery than has been forthcoming to ensure their longer-term survival.

And for some companies, business may have dwindled because of a dependency in part or whole on public sector contracts, with these being reduced due to austerity cuts.

The tally of compulsory liquidations was 1,389, which was up by 14.1 per cent on the previous quarter and 16.1 per cent on 12 month earlier, while the 2,871 creditors' voluntary liquidations were down 5.1 per cent on the previous three month period, but 3.4 per cent up year-on-year.

Nor were these figures the only evidence of a worsening situation. The fourth quarter also saw 1,173 other corporate insolvencies (this figure was not seasonally adjusted), up 5.1 per cent on a year before.

Of these, 324 were receiverships, 658 were administrations and 191 company voluntary arrangements.

For people involved with businesses that are performing badly and faced with the possible loss of business, these figures may seem daunting. But they might also indicate that such firms are in good company and that shying away from taking action is not a wise way to proceed.

The Money Advice Trust responded to the figures by noting that its Business Debtline took record numbers of calls in 2011, with common problems for small firms being late payments, issues with suppliers and trade shortfalls.

Spokesperson Nicola Connop said: "Whilst insolvency can seem like a daunting process, there are occasions where it will be the best option, both financially as an individual and also with a view to trading again in the future."
 

Small and medium enterprises (SMEs) are showing more signs of being in difficulty than larger companies, a new report has indicated.

Smaller firms are likelier to need insolvency advice than bigger ones due to lower sales and profits, a study by insolvency professionals' body R3 has revealed.

Its latest research has shown that over the past year, 29 per cent of SMEs have seen sales volumes fall, compared with just six per cent of larger businesses.

And in addition to this, 34 per cent of smaller firms have seen profits fall, compared with 19 per cent of larger enterprises.

One interesting finding is that the overall number of businesses showing signs of distress (58 per cent) is ten per cent down on December 2010. However, R3 president Frances Coulson said this is no cause for rejoicing.

She remarked: "Could this be the calm before the storm? Many 'zombie' businesses have been surviving but not thriving and we know that businesses do not fail in the middle of a recession, but when the economy is recovering.

"The 'insolvency lag' we have seen in previous recessions is slower to materialise this time around, and traditionally insolvencies increase during the recovery phase."

Firms who are restructured through the help of administration services may find they are sold on to competitors who have fared better due to modern trading methods, such as using the internet to sell their goods and services.

R3' study revealed that 39 per cent of firms who do not take online payments have seen profits fall, compared with 25 per cent of those whose wares are available on the web.

Speaking recently in the BBC's On the Money podcast, former Bank of England monetary policy committee member Dr Andrew Sentance said: "Online spending is increasing very strongly" and noted that this has caused major problems for companies who have not managed to keep up with such developments like outdoor goods retailer Blacks, who recently went into administration before its assets were sold to JD Sports in a pre-pack deal.

Portsmouth Football Club is facing a new corporate insolvency battle after admitting that it has failed to pay its players in the last month.

Like any company, an organisation that is unable to find the cash to remunerate its employees is either acting in a very underhand way or in deep trouble. And there is no doubt that the latter applies, with HM Customs and Revenue having applied for a winding-up order.

The club has been in financial difficulties since over-investing in the transfer market in recent years. This brought on-field success when the club won the FA Cup in 2008. But it also ran into deep debt and was almost wound up over unpaid tax bills by HM Revenue and Customs in 2010 – the year the club was relegated from the Premier League and therefore lost the extra TV income that comes with such status.

With its main playing assets sold on, the club has struggled to get by since then and while it moved on from a foreign ownership period in which serious questions were asked of those in charge, the recent issues have arisen from its current owners going into administration.

A club statement this week said the freezing of its account was "the normal process" after a winding-up petition has been issued.

It added: "The club is now seeking a validation order from the court in order to have its bank accounts unfrozen so that staff wages and suppliers can be paid."

While the club is confident this will happen in the coming days, the persistent difficulty of the company may bode ill. Speaking to the BBC, insolvency lawyer Guy Thomas said: "This is as bad as it can get for Portsmouth without the club ceasing to exist."

And it may act as a reminder of the dangers facing troubled companies of all kinds if the club does go under – with the memories of a club parading one of sport's most glamorous trophies just a few years ago still very fresh.

Some may imagine that security is one area of the service sector where companies will continue to thrive even when the economy is struggling.

After all, one may reason, even if properties are vacated by businesses they still need looking after, while there are certain types of crime – such as metal theft – that have been very prominent in recent years, with everything from lead roofs to railway cables at risk.

But this did not prove to be the case for property Protection GRP (UK) ltd, a company based in the Essex Town of Brentwood with a number of local contracts.

Clearly, there was not enough business coming onto the firm's books from the area and this led the company into financial trouble.

Earlier this month, Property Protection went into administration, with SFP taking charge on January 19th. Partners Daniel and Simon Plant were appointed joint administrators on that date.

The situation involving the company was not as severe as some. In the case of a firm that has ceased trading, the best that may be managed on many occasions is a sale of assets. But SFP worked swiftly to ensure the preservation of the company. They were able to negotiate with an interested party and complete a sale.

Simon Plant said: "It was unfortunate that Property Protection GRP (UK) Limited struggled due to a lack of cashflow at a critical time. However, we managed to secure a sale of the business as a going concern, ensuring the preservation of jobs and continuity of supply for its customer base."

This outcome may offer a good example of why small businesses who do find themselves in severe financial trouble might wish to call in the administrators before matters get so bad that a cessation of trading takes place, with the opportunity to preserve the company name, its customer base and the livelihoods of the people who work for it.

Of course, once a going concern is sold on that is not the end of the story. A glance at the Property Protection web address simply confirms that it is registered for the firm, with one task the new owners will face being to build an online presence to help the company thrive in the future. But the potential for new capital investment in the enterprise could help ensure that and all other necessary measures can be taken.

One man who has noticed the importance of this is Dr Andrew Sentance, a former member of the Bank of England's Monetary Policy Committee and now the senior economic advisor to PricewaterhouseCoopers.

Commenting for the BBC On the Money podcast, he remarked: "Online spending is increasing very strongly. Consumers are starting to change the way in which they are conducting their spending and that is having an impact on established businesses like Blacks and Millets."

How much of an impact a better online presence may be in developing Property Protection GRP remains to be seen, but it could be their local focus was too narrow to bring sufficient custom and income, meaning a wider reach is part of the solution.

However, the first part of their road to new beginnings was the one many a struggling company may take; bringing in administrators like those at SFP who can quickly negotiate and conclude a sale.
 

For many businesses, the key to success is to go where the custom is. A major company operating across the UK might ensure it has more offices, factories or stores in places where local economic performance is better; where unemployment is lower and wages higher to ensure the spending power of potential customers is more than elsewhere.

Similarly, some companies may seek to establish themselves in places where the employee skills are more readily available.

And the reverse may also be true: a company may shut its operations in areas where economic circumstances are less favourable.

But such an approach may be harder for some small businesses, which might chiefly or exclusively serve their immediate area, town, city or region. Their focus will mean they could thrive or fail depending on the fortunes of the local economy.

A clue as to which places may see thriving businesses and where there may be a widespread need for bankruptcy advice may have been provided by policy research body the Centre for Cities.

Its Cities Outlook 2012 has forecasted that the relative gaps between the performances of cities will grow, with some enjoying growth even with a possible new recession in prospect.

The report highlights cities with strong private sectors, highly skilled workforces and large knowledge economies as performing better than others since the 2008-09 recession began. A second group – with fewer skilled workers and a greater reliance on public sector jobs – has fared much worse and is likely to go on doing so. The former group includes cities like Cambridge, Edinburgh and London, while the second comprises places such as Hull, Doncaster and Newport.

In the near future, cities at the heart of innovative new technologies and with high levels of education are tipped to do well, with Aberdeen and Milton Keynes among those expected to thrive. Elsewhere, a declining local economy may send many local firms into bankruptcy as their customer base endures rising unemployment.

Of course, much may change if the right action is taken by those who can. For instance, another recent Centre for Cities publication suggested Preston may help drive growth in Lancashire if its city centre is made more attractive and accessible.

But where cities fail to develop in a way that boosts their local economies, many small firms could be the innocent victims of decline.

Many struggling retailers could find they need insolvency advice after a bad Christmas and a tough 2011 overall, but the overall drop in consumer spending is not the only cause, according to a leading economist.

Speaking on the BBC's On the Money podcast, senior economic advisor to PricewaterhouseCoopers and former Bank of England monetary policy committee member Dr Andrew Sentance said the current picture in retail is a combination of "structural and cyclical things".

This means that as well as inflation causing customers to tighten their purse strings, there has been a significant shift from heading down the high street to online spending while enjoying the comforts of home, he explained.

Dr Sentance added: "Online spending is increasing very strongly. Consumers are starting to change the way in which they are conducting their spending and that is having an impact on established businesses like Blacks and Millets.

"Businesses in the retail sector need to move with the times and need to adapt to that. Those that have struggled in that area are finding that they have got quite a few challenges at the moment."

The mention of Blacks and Millets may offer a clear example of how even an established major force in a particular market – in this case outdoor gear – can lose its way. Competitors like Go Outdoors have had a more established online presence and have been able to sell goods this way.

And Go Outdoors has clearly done well, as it has managed to combine its online offerings with the opening of several new stores around the UK, with new outlets in places like Colchester, Inverness, Plymouth, Thurrock, Warrington and Erdington (Birmingham). A new store will soon be opening in Swansea.

And just to show that the situation for retailers is a tough one, the British Retail Consortium has revealed that the SRC-KPMG Scottish Retail Sales Monitor's figures for December were the worst in Scotland since 1999. The situation there was worse in the UK as a whole, with consumer confidence having fallen lower.

So for those who are not adapting to changed circumstances, the future could be very bleak – and short. 

A poll of small businesses has shown a fall in confidence levels – a potential sign that many enterprises could be struggling to stay afloat.

The Federation of Small Businesses (FMB) survey for the final three months of last year recorded a sentiment reading of -24.5, the lowest in the short history of the index – which started in 2010 – and 15.2 points down on the third quarter of 2011.

Issues recorded as being of concern include inflation, higher utilities bills and falling consumer spending, all of which could depress income.

And for companies that are struggling, this could leave some seeking insolvency advice.

However, the FMB position is not one of complete doom and gloom. It has pinpointed falling inflation in the months ahead as being a factor that will help to boost consumer spending and while 12.6 per cent of small firms expect the economic situation to worsen in the next three months, it is upbeat about the longer term.

However, it suggested, a key issue is for the benefits of some positive developments to feed through as quickly as possible. The organisation has backed government measures in the Growth Review and Autumn Statement to bolster small firms, such as increased bank lending and the seed enterprise investment scheme, changes to planning controls and more access to government procurement contracts.

For the small business sector, there is a race against time to ensure these benefits are felt, according to FMB national chairman John Walker.

He said: "The government needs to quickly put in place the actions that it has promised. Small firms have heard what the government has to say but are still waiting to see implementation."

Following the publication of the survey, the FMB announced its research also showed 6.5 per cent of its members intend to cut jobs this year. This led to Mr Walker suggesting that swift action by the government – such as cutting red tape – can help underpin the sector. This comment also prompted shadow minister for small businesses Toby Perkins to argue the familiar Labour view that government cuts have "choked off" the recovery and caused higher unemployment.

But whatever the rights and wrongs of the political arguments, the key for some small firms could be to survive the next few months before better times emerge later in the year. But for many, that recovery could come too late.

Insolvency practitioners are seeking an 11th hour rescuer for Darlington Football Club as it teeters on the brink of extinction.

The north-east of England may have a presence in the money-laden Premier League through Newcastle and Sunderland, while Middlesbrough are chasing promotion to the top flight from the Championship, but while these clubs have stable finances, significant fanbases and a high profile, the reality is different further down the ladder.

Hartlepool and Darlington are the minnows of the region and in the latter case, the club known as the Quakers has now entered administration for the third time in nine years.

While many clubs have suffered this situation and managed to either solve their debts enough to exit or get taken over, there can always be a risk that a club leaving the Football League is at greater financial risk, even if the highest level of non-league football is still a full-time professional set-up. 

In Darlington's case, the club and a rescue group formed by supporters is working hard with the administrators to secure a takeover, but unless this happens within days the club could go bankrupt – according to local MP Jenny Chapman.

Speaking in the House of Commons, she stated: "Sadly, despite the best efforts of local businesses, the Northern Echo and the local council, the club is in administration and has days, if not hours, before liquidation."

While such an outcome may be a tragic one for Darlington, it will not be unique, as clubs like Aldershot, Accrington Stanley, Bradford Park Avenue and Scottish clubs Third Lanark and Gretna have found in the past.

Moreover, just as with other small businesses in trouble, such eventualities might also prove more common than some fear.

Speaking to the Business Desk earlier this month, Brendan Guilfoyle, from the P&A Group of administrators in Sheffield, warned that 2012 may bring several such insolvencies.

He said: "The market has changed and is getting worse; we can no longer assume we can find buyers for football clubs."

So even if Darlington do get a last-minute reprieve, another club may soon not be so lucky.
 

Demand for insolvency services will be high in the retail sector over the next few months, the British Retail Consortium (BRC) has predicted.

With mixed results emerging among various companies in the sector for the Christmas and new year period, the number of such enterprises entering administration might well continue rising.

This was certainly the case last year, the BRC noted, pointing to figures by Deloitte showing that while 165 retailers called in the administrators in 2010, this figure rose to 183 in 2011.

Furthermore, the number of administrations in the final quarter of last year was 25 per cent up on a year before.

BRC director general Stephen Robertson said: "2011 was a tough year with virtually no real terms growth for retailers. In such a competitive sector there will always be businesses that do well while others struggle but seeing such a high number of failures in the final quarter of the year is particularly alarming."

And the first few months of 2012 are "bound to be quieter as consumers rein in spending after Christmas," he reasoned.

Mr Robertson called for the government to provide more help, noting business rates, retail levies and the regulatory burden are areas where ministers can directly influence events.

Many small retailers, like their larger counterparts, may have found the going tough recently and those struggling to stay afloat may benefit from seeking insolvency and restructuring help as soon as possible.

One retailer that has necessarily entered administration is outdoor gear company Blacks, but its survival has been secured today (January 9th) after its assets were bought by JD Sports.

The £20 million sale brokered by administrators will see the assets of the firm go to JD Sports and the proceeds from the sale will be used to pay off Blacks' debts with the Royal Bank of Scotland.

In the meantime, all Blacks shares will be de-listed.