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Software developer insolvencies grow as competition tightens

Insolvencies for ICT companies fall overall but more software developers struggle as competition intensifies

Software developers have suffered a rise in insolvencies of more than a quarter year on year, according to recent figures.

The number of companies in software development for the business or domestic markets that filed one or more insolvency notices in the third quarter of 2015 was up by 27.1% compared with the same period in 2014, rising from 48 to 61.

However, the latest figures from the Exaro Insolvency Index show that the level of insolvencies across information and communication companies over the same period fell slightly, from 528 to 521 – a decrease of 1.3%.

The overall figure represents a decrease of 5.6% on the second quarter of 2015, down from 552 companies.

“Competition is fierce. Many IT businesses are having to defend themselves from being undercut by rivals,” said Andrew Corbett, membership services director of the UK IT Association.

One software developer that entered insolvency in the period was Rostima, which appointed administrators in August 2015.

The company, which employed eight staff and was based in Maidenhead in Berkshire, provided bespoke software for workforce planning and management, specialising in the maritime industry. Clients included shipping companies and container and passenger terminals.

Administrators say they are in the process of selling the business as an ongoing concern, retaining jobs for four members of staff.

IT companies fare better overall

The year-on-year decrease of 1.3% for information and communication companies in the three months to September is an improvement on the rise of 4.9% for the second quarter of  2015.

IT consultancies continue to endure rising insolvency levels, although it has decelerated marginally since the previous set of figures.

The latest figures show a year-on-year rise of 12.9% in insolvencies among IT consultancies, going from 194 in the third quarter of 2014 to 219 in the same period in 2015.

Other types of information and communication companies have fared better, reducing the overall insolvency level. For example, nine companies in data processing collapsed in the third quarter of 2014, but none in 2015, according to the Exaro Insolvency Index.

However, the overall improvement in the sector is outstripped by falls in insolvencies in the UK economy as a whole, which saw a fall of 11.5% in the rate of company failures.

“Despite a turbulent few months for the global economy, and slowing growth according to this week’s GDP figures, the UK has continued to fare relatively well,” said Clive Lewis, head of enterprise at the Institute of Chartered Accountants in England (ICAEW).

Startup companies

The UK IT Association’s Corbett said: “To succeed, IT companies have to educate their customers to make the right choice of IT supplier, to find ways to make people choose your company when you are not the cheapest option.”

“Many of the recent technology startups work to a two-year exit strategy. Either the company becomes a success and is sold on, or it does not and is closed down,” he added.       

The Exaro Insolvency Index draws on insolvency notices in the London, Belfast and Edinburgh editions of The Gazette, along with information from Companies House. In the source data, a small proportion of the insolvencies are not ascribed to a specific sector.

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