Fall in Company and Personal Insolvency Rates

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Statistics showing insolvencies in the second quarter of 2012 were published today by the Insolvency Service.

Company insolvencies

There were 4,115 compulsory liquidations and creditors’ voluntary liquidations in total in England and Wales in the second quarter of 2012 (on a seasonally adjusted basis). This was a decrease of 3.6% on the previous quarter and 2.4% less than the same quarter a year ago.

These figures are made up of 1,040 compulsory liquidations (down 13.9% on the previous quarter and down 18.7% on the corresponding quarter of the previous year), and 3,075 creditors’ voluntary liquidations (which are up 0.4% on the previous quarter and up 4.6% on the corresponding quarter of the previous year).

Additionally, there were 1,310 other corporate insolvencies in the second quarter of 2012 (not seasonally adjusted) comprising 333 receiverships, 625 administrations and 352 company voluntary arrangements. In total these represented an increase of 6.3% on the same period a year ago.

Individual insolvencies

There were 27,390 individual insolvencies in England and Wales in the second quarter of 2012. This was a decrease of 10.2% on the same period a year ago.

This was made up of 8,088 bankruptcies (which were down 27.1% on the corresponding quarter of the previous year), 7,956 Debt Relief Orders (DROs) (which were up 9.6% on the corresponding quarter of the previous year) and 11,346 Individual Voluntary Arrangements (IVAs) (which were down 6.6% on the corresponding quarter of the previous year). Bankruptcy numbers have been impacted by the introduction of DROs from April 2009, amongst other factors. Numbers of DROs are now comparable to total bankruptcies for the first time, while Bankruptcy Orders have been lower than IVAs for the last five quarters.

In the second quarter of 2012, 6,430 bankruptcies were made on the petition of the debtor (representing 79.5% of total cases); both the level of debtor petition bankruptcies and their share of total cases have been following a generally decreasing trend since the beginning of 2009 when there were 17,606 (86% of the total). The percentage of bankruptcy orders involving trading debts (self-employed bankrupts) was 23% in the first quarter of 2012 (second quarter 2012 figures for trading-related bankruptcies are not yet available); higher than throughout the previous few years. This is due to the decline in numbers of cases involving consumer debts (non-traders).

Company liquidation and individual insolvency rates: longer-term perspective

In the twelve months ending Q2 2012, approximately 1 in 142 active companies (or 0.7% of all active registered companies) went into liquidation, similar to the previous quarter. The liquidation rate remains low compared to a peak of 2.6% in 1993, and the average of 1.2% seen over the last 25 years.

It should be noted that the number of active companies has changed considerably over this period; there were nearly 2.5 million active registered companies in Q2 2012; this compares with only about 900,000 in the early 1990s and less than 800,000 in 1986.

In the twelve months ending Q2 2012, approximately 1 in 382 people became insolvent. This is down from 1 in 372 in the previous quarter. The individual insolvency rate had displayed a steeply upward path (with some fluctuations) since 2004 and is currently still elevated compared to the annual average of 1 in 1,600 people (0.1%) seen over the last 25 years.

Lee Manning, R3 President, said:

“Levels of personal insolvency are down 4.6% on the quarter and 10.2% on the year. This could be a sign that there is less credit out there so people are having to act more responsibly, and tighten their belts.

“However, we should be aware of the group just outside the official figures. Roughly one in ten of GB adults can only afford the interest charges on their credit cards, according to figures from insolvency trade body, R3. In the short term, it is perfectly possible to survive in this state – but there must be some sort of strategy for getting out of it. My worry is that this group will linger in this state and remain vulnerable to any further unfavourable change in circumstance, such as an interest rate rise or loss of employment.

“Over the past two years formal insolvency numbers have actually decreased but we know concern over debt is an issue for over half (54%) of GB adults, according to R3. This is backed up by the finding that 51% now struggle to payday (up from 39% at the start of 2012) – so this worry is more than just an uncomfortable nag at the back of one’s mind. The real-time consequences of this means almost 4 million (3,915,866) GB adults are now considering taking out a payday loan, while a quarter of us (28%) currently have no savings.

“Seeking professional advice is better than merely wishing the struggle away – a proactive approach now could well stave off insolvency later.”

Chris Nutting, Director of Personal Insolvency at KPMG said:

“The figures continue to demonstrate a declining trend in personal insolvency with overall numbers down 10.2 per cent on the same period last year. I expect the underlying downward trend  to continue as households continue to adapt to a maturing culture of more prudent financial management and restricted access to credit.

“This demonstrates the changing profile of the market, with those debtors having few assets and relatively low levels of debt choosing DROs, while those with realisable assets (whether physical assets or contributions from income) opting for bankruptcy and IVAs.”

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