Insolvencies to rise

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Insolvencies to rise

MicroScope staff

Resellers should be braced for a year of economic uncertainty as the effects of the collapse in the sub-prime market and credit crunch continue to reverberate around the world.

Measures taken last week by a number of global banks to shore up confidence in inter-bank lending by pumping £54bn into the markets indicated the level of intervention that governments are prepared to take to ease the global credit crisis.

Meanwhile, research from accountant and business advisory firm BDO Stoy Hayward has warned that insolvencies will rise to just under 17,700 in 2008 - an increase of nine per cent on 2007.

That sort of business failure rate has not been seen in the UK since the dotcom crash.

Ampito's Manny Pinon said that the report did not necessarily spell doom for the industry: "The IT business is a lot better run than it was five years ago, when lots of companies didn't even have financial directors."

Ian French, managing director of consultancy Siceo, predicted a bad year ahead for some in the channel: "It won't be a disaster, but I'm definitely expecting more casualties."

The services sector in particular looks vulnerable - with BDO expecting nearly 4,000 businesses to go to the wall next year - which could be disastrous for system integrators and networking providers.

There would inevitably be casualties, said Terry Burt, CEO at 2e2: "It will be interesting to see how the banks react and if there will be a recession. I doubt that there will, but trading conditions will be a challenge."

Alistair Head, managing director at KX Network Solutions, said some resellers had taken economic decisions that would put them at risk.

"[Such failures] will be largely self-inflicted," he remarked. "If you build a company on credit it will obviously fail; it's natural wastage."

Sources also indicated that distributors could be in for a rough ride, with many operating on a tight business model that was vulnerable to changes in credit terms and buying habits.

Mark Ancell, head of intelligence at Graydon UK, said some businesses were so heavily geared they were at the mercy of changes in interest rates: "There is an opportunity to improve credit procedures, but the year is going to be tough."

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