Commercial disputes increase as economy stalls
Date:23 July 2012
- 1,282 more commercial High Court cases in 2011 than previous year
- Fuelled by 24% jump in number of winding-up applications by creditors
A worsening of the UK's economy has led to an increase in commercial litigation, according to City law firm RPC (Reynolds Porter Chamberlain LLP).
There was a 1,282 increase in the number of commercial cases launched in the High Court in 2011, up to 49,166 in 2011 from 47,884 in 2010.
Geraldine Elliott, RPC's Head of Commercial Litigation, comments: "There was a substantial increase in commercial court disputes last year, as the UK economy headed towards a double dip recession."
"Commercial litigation tends to increase when the economy underperforms and businesses' revenues decline. With the Eurozone crisis hitting demand in Europe and beyond, last year's increase could be the start of a major wave of litigation."
RPC says that the increase is driven by a large 24% jump in the number of winding-up petitions made in the Companies Court, from 5,783 in 2010 to 7,166 in 2011.
Geraldine Elliott explains that winding-up petitions are often a last resort for businesses to recover money they are owed by struggling customers.
She says, "It is often a sign of desperation when a creditor has to resort to a winding-up petition to recover its money."
"A winding-up petition means a liquidator or administrator will be appointed to recover as much as possible for any remaining creditors, but by the time this happens there is not normally much left in the pot. Liquidation of a business is usually only deployed after exhausting all other avenues – they really are the nuclear option."
"Liquidations are an important indicator for the overall health of the economy: when the economy underperforms, winding-up petitions increase."
Geraldine Elliott continues: "What has been surprising is that the credit crunch didn't lead to the dramatic increase in the number of commercial court cases that most commentators predicted."
"Many disputes haven't reached court because they have been settled on a commercial basis by the companies involved. Other businesses have opted for the privacy of arbitration proceedings, which are conducted behind closed doors and still others are yet to hit the courts."
Says Geraldine Elliott: "Businesses won't be planning on an economic recovery happening anytime soon, so it could be that they are re-assessing whether to launch any outstanding legal claims they have."
"If businesses decide that it's 'now or never' to lodge legal claims stemming from the credit crunch and subsequent recession, the next few years could see a big explosion in commercial court cases."
Geraldine Elliott, Partner
Reynolds Porter Chamberlain LLP
Tel: +44 (0) 20 3060 6435
Nick Mattison or Louis Auty
Mattison Public Relations
Tel: +44 (0) 20 7645 3636