Personal and Business Insolvencies on the Rise

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Business insolvencies rise slightly in 2016

Data from the Insolvency Service indicates a 2.2% increase in business insolvencies in the third quarter, following a decline in the previous quarter. An estimated 3,633 firms entered insolvency in the third quarter of 2016. More than 600 businesses were subject to compulsory liquidation over the period, up 3.5% on the previous quarter. There were also an estimated 75 company voluntary arrangements and five administrative receiverships in the quarter.

The sector which was worst hit was construction, with 2,450 company failures. The next worst affected was the wholesale trade and vehicle repairs sector, followed by administrative and support services.

However, despite this increase in company insolvencies, the figures suggest a relatively benign climate. The liquidation rate is at its lowest level, measured in terms of total company numbers, since records began in 1984.

The latest R3 and BDRC Business Index report, which measures business distress, indicates that one in five of businesses surveyed was experiencing a level of financial distress.

Andrew Tate, president of R3, said: “A quarterly rise in corporate insolvency numbers is not necessarily an indicator of Brexit-related financial problems for UK companies . . . While companies dependent on imports are struggling with the falling value of the pound, anecdotal evidence from our members suggests the vote to leave the EU has not led to more insolvency procedures due to factors other than the exchange rate. However, we are hearing that more companies have been coming to restructuring experts for advice.”

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Falling pound could push more individuals into difficulty

The number of individuals becoming insolvent across England and Wales increased by a fifth in the third quarter, and experts have cautioned that the numbers could continue to grow as the cost of living increases in the light of the UK’s decision to leave the EU.

There were 24,251 personal insolvencies recorded between July and September – a 19.3% rise compared with the same period last year and a 6% increase on the second quarter of this year, according to the Insolvency Service.

The number of bankruptcies in the third quarter increased by 7% compared with the previous quarter, with 3,844 new cases recorded, the figures show. Despite this increase, bankruptcies are still down by 1.5% when compared with a year ago.

The figures showed a significant increase in the use of individual voluntary arrangements (IVAs), whereby money is shared among creditors. There were 13,917 IVAs in the third quarter, a figure which is 10.9% higher than in the second quarter and a 28.8% increase compared with the same period a year ago.

Andrew Tate of R3 said that the rising cost of living and reforms to personal insolvency procedures had combined to push the numbers upwards: “Individual voluntary arrangement numbers, which make up the bulk of personal insolvencies, are sensitive to the cost of living. IVAs fell rapidly from 2014 onwards as wage growth finally overtook inflation after the financial crisis. Having plummeted towards 0% in 2015, inflation has been rising again this year and IVA numbers have followed."

Meanwhile, there were 6,490 debt relief orders (DROs) during the third quarter – a 3.7% decline compared with the previous quarter but up 15.3% compared with the third quarter of 2015. DROs, which target individuals with smaller amounts of debt but no realistic prospect of paying it off, were overhauled in 2015 to allow those with debts of up to £20,000 to apply for them.

Applying for bankruptcy online can remove stigma, says Insolvency Service

More people are choosing to apply for bankruptcy after a rule change in April which now means that it can be done online, rather than in court.

The Insolvency Service has said that a perceived stigma surrounding court proceedings has hitherto presented a barrier to some.

Insolvency and corporate recovery experts

Our insolvency and corporate recovery lawyers are able to offer you that level of expertise at a time when you really need the support to get through potential or current difficulties. For advice on Insolvency and Corporate Recovery (Liquidations, Administrations, Receiverships, Directors duties and disqualifications, Debt recovery, Personal bankruptcies) and other corporate and commercial law matters, please contact a member of the team on 03456 381381 or email enquiries@ibblaw.co.uk.

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