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The 4th quarter insolvency statistics have been published today. The figures show some interesting developments. On the corporate side the Insolvency Service note: "There were 3,834 compulsory liquidations and creditors’ voluntary liquidations in total in England and Wales in the fourth quarter of 2012 (on a seasonally adjusted basis). This was a decrease of 3.3% on the previous quarter and 10.7% less than the same quarter a year ago. This was made up of 922 compulsory liquidations (down 15.2% on the previous quarter and down 33.8% on the corresponding quarter of the previous year), and 2,912 creditors’ voluntary liquidations (which were up 1.2% on the previous quarter and up 0.4% on the corresponding quarter of the previous year). Additionally, there were 1,007 other corporate insolvencies in the fourth quarter of 2012 (not seasonally adjusted) comprising 276 receiverships, 580 administrations and 151 company voluntary arrangements. In total these represented a decrease of 14.2% on the same period a year ago."
On the personal side the DRO goes from strength to strength. The Insolvency Service note, "There were 25,302 individual insolvencies in England and Wales in the fourth quarter of 2012. This was a decrease of 12.9% on the same period a year ago. This was made up of 6,919 bankruptcies (which were down 20.1% on the corresponding quarter of the previous year), 7,397 Debt Relief Orders (DROs) (which were up 0.5% on the corresponding quarter of the previous year) and 10,986 Individual Voluntary Arrangements (IVAs) (which were down 15.8% 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 higher than total bankruptcies for the second quarter, while Bankruptcy Orders have been lower than IVAs for the last seven quarters.
In the fourth quarter of 2012, 5,487 bankruptcies were made on the petition of the debtor (representing 79.3% of total cases); the level of debtor petition bankruptcies has been following a generally decreasing trend since the beginning of 2009 when there were 17,606 (86% of the total). Creditor petition bankruptcy numbers have also been falling over a similar period, though less rapidly and less consistently. The percentage of bankruptcy orders where the individuals were self-employed was 22.6% in the third quarter of 2012 (fourth quarter 2012 figures for self-employed bankrupts are not yet available); higher than in earlier years. This is due to the decline in numbers of cases amongst non-traders..."
R3 have commented on the figures. They note:
"Total individual insolvencies in 2012 are down 8% from 2011 figures, while bankruptcy orders have fallen 24% year on year which is encouraging, however this should not be taken as an indication that people are prosperous and financially secure. There remains a vast majority of individuals who are still struggling with their personal finances. This is evidenced by consumer spending falling as people continue to prioritize paying down their debt.
“Individuals typically petition for bankruptcy because of credit card and bank debt that they cannot repay however in recent times we have seen more manageable repayment plans put in place by lenders. This has allowed indebted individuals to pay off their debts over a longer period of time instead of entering formal insolvency. If lenders were to become more aggressive in their pursuit of debts owed it is likely that we will see more individuals becoming insolvent.
“Stagnating wages and rising living costs continue to push household budgets to breaking point, causing debt concern to be rife amongst the UK population. R3 research shows that six in ten (59%) worry about their current levels of debt, while nearly half of the British population (47%) struggle to make it to payday each month, with rising food and fuel costs being the main reasons behind their struggle. Of those who struggle to payday, 67 per cent blame rising food costs while 58 per cent blame rising fuel costs for this.
“In addition, many other people, outside of these official figures, are likely to be in an informal insolvency procedure such a debt management plan or have resorted to taking out a payday loan to make ends meet. R3’s research has revealed 5 million adults say they are likely to seek a payday loan in the next six months; an increase on 3.5 million adults at the end of 2011.”
Decreasing levels of corporate insolvency
“Following the shrinking economic output in the latest GDP figures, and fears of a triple dip recession, today’s drop in corporate insolvencies is a welcome sign. Year on year, the total number of Company Liquidations in 2012 has fallen 4% from 2011, and administrations are down 12%. Corporate insolvency rates remain historically low, especially when contrasted with previous recessions.
“However, these figures do not take into account the size and impact of the businesses that fall into insolvency. In 2012 we saw some high profile retail casualties including Comet, La Senza, Game and Clinton Cards. The biggest 12 retail insolvencies accounted for over 1,700 store closures and 26,500 jobs. That is over a fifth of the total redundancies resulting from insolvency in a year.
“R3 research shows there are now 160,000 zombie businesses in the UK, that is businesses only able to pay the interest on their debt but not the debt itself. Zombie businesses have remained in distress for some time, they are unable to invest or expand, but are nonetheless being kept alive by lenient creditors and low interest rates. Whilst low insolvency rates are good for employment, this stagnation does tie up capital that could be used for other, healthier businesses. We may need to have an honest and realistic assessment of when resuscitation of zombies is impossible, and take action accordingly if we are going to secure long-term growth.”
Lee Manning, R3 President."
"This is the ultimate statement of where the law on IVAs is to be found in our great common law...