Corporate Insolvencies Continue to Fall While Personal Insolvencies Rise by a Fifth

New figures from the Insolvency Service show that the number of people being declared insolvent in England and Wales has risen by a fifth (22%) on a year ago. A total of 22,503 people were left with unmanageable debts in the second quarter of the year, according to the official figures.

Personal insolvencies are made up of bankruptcies, individual voluntary arrangements (IVAs) and debt relief orders (DROs).

The increase in declarations of insolvency in the second quarter was driven by a big jump in the number of IVAs – agreements where funds are shared out among creditors. Some 12,225 IVAs were recorded in the period, a rise of more than two-fifths (42.7%) on a year earlier, and 15.4% higher than the previous quarter.

Meanwhile, 6,741 DROs were taken out, marking a 15.6% rise on a year earlier and a 0.3% rise on the previous quarter. DROs – sometimes called ‘bankruptcy light’ – are designed for individuals with lower levels of debt but no realistic prospect of paying it off.

The figures show there were 3,537 bankruptcies – an 11.2% decline on a year earlier and a 5.4% falling-off compared with the first three months of 2016.

Overall, it was the fourth successive quarterly rise, although insolvency rates remain relatively low by historical standards. R3, the insolvency and restructuring trade body, said the increase was a concern. “This is the most sustained rise in personal insolvency numbers since the financial crisis,” Andrew Tate, president of R3, said.

“Although interest rates are at record lows, despite employment levels being high and despite wages growing faster than inflation, people are still struggling to pay their debts,” he added.

R3’s own survey of 2,000 people indicates that more than one in three (37%) were worried about their level of indebtedness.

Corporate insolvencies continue to fall

Corporate insolvencies have continued to decline, with 3,617 companies entering insolvency in the second quarter, 4.2% lower than in the first three months of the year. Businesses have continued to benefit from cheap borrowing and better than anticipated GDP growth, and the decrease was also driven by a fall in compulsory liquidations, where a business is killed off after a winding-up order is obtained from a court.

Adam Dowdney, IBB’s corporate finance specialist, commented:

“It is interesting to see that personal insolvency numbers have increased in the second quarter, reflecting personal debt issues, whereas over the same period corporate insolvencies have decreased. It seems companies are increasingly aware of the need to sort out their affairs in advance of a formal insolvency situation, and the more lenient attitude of the banks may also have helped companies stay afloat. It will be interesting to see the impact of Brexit on both personal and corporate insolvencies in the medium to long term, however”.

The Insolvency Service said the liquidation rate was the lowest since comparable records started in 1984. The estimated liquidation rate in the past 12 months was 0.42% of active companies.

There were around 340 company administrations in the second quarter, an 8.2% increase on the previous quarter but a fall of 8.7% when compared with a year earlier.

This quarterly increase in administrations was the first since the second quarter of 2015. When a company goes into administration, the objective is to rescue it as a going concern, or if this is not possible then to get a more favourable result for creditors than if the company was wound up.

Andrew Tate of R3 said: “More companies are looking to repair finances outside of formal insolvency procedures and take action before it’s too late . . . creditors, particularly banks, have played a role in pushing struggling debtors to seek help from the insolvency and restructuring profession before an insolvency procedure is their only option.”

Higher insolvency rate for women

Figures from the Insolvency Service also indicate that women were more likely than men to see their finances deteriorate so badly that they became insolvent last year.

Continuing a trend that began in 2014, the personal insolvency rate for women across England and Wales was higher in 2015 than it was for men, according to the official figures.

The personal insolvency rate per 10,000 adults was 18.2 for women in 2015, while for men the rate was 16.9.

The main factor behind the higher rate for women was that they were more likely to take out debt relief orders. Historically, men were consistently more likely to be declared insolvent than women, but the gap narrowed from 2009 – the same year that DROs were introduced.

Insolvency and Corporate Recovery

Our insolvency and corporate recovery team is able to offer you that level of expertise at a time when you really need the support to get through potential or current difficulties. To talk to one of our corporate solicitors, call us today in confidence on 01895 207973. Alternatively, you can email us at corporate@ibblaw.co.uk.

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