Third Quarter Insolvency Statistics released by the Insolvency Service
The Insolvency Service have published the third quarter insolvency statistics for 2012. Here are the highlights and some press related comment:
There were 3,971 compulsory liquidations and creditors’ voluntary liquidations in total in England and Wales in the third quarter of 2012 (on a seasonally adjusted basis). This was a decrease of 2.8% on the previous quarter and 6.6% less than the same quarter a year ago.This was made up of 1,092 compulsory liquidations (up 5.5% on the previous quarter but down 10.2% on the corresponding quarter of the previous year), and 2,879 creditors’ voluntary liquidations (which were down 5.6% on the previous quarter and down 5.1% on the corresponding quarter of the previous year). Additionally, there were 986 other corporate insolvencies in the third quarter of 2012 (not seasonally adjusted) comprising 277 receiverships, 548 administrations and 161 company voluntary arrangements. In total these represented a decrease of 21% on the same period a year ago.
There were 28,062 individual insolvencies in England and Wales in the third quarter of 2012. This was a decrease of 7.2% on the same period a year ago. This was made up of 7,617 bankruptcies (which were down 20.5% on the corresponding quarter of the previous year), 7,777 Debt Relief Orders (DROs) (which were up 2.3% on the corresponding quarter of the previous year) and 12,668 Individual Voluntary Arrangements (IVAs) (which were down 2.9% 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 higher than total bankruptcies for the first time, while Bankruptcy Orders have been lower than IVAs for the last six quarters. In the third quarter of 2012, 6,040 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 involving trading debts (self-employed bankrupts) was 22.9% in the second quarter of 2012 (third 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) as may be seen in Figure 3 below.
Long Term Perspective
In the twelve months ending Q3 2012, approximately 1 in 146 active companies (or 0.7% of all active registered companies) went into liquidation, similar to the previous quarter. As Figure 4 shows, 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 Q3 2012; this compares with only about 900,000 in the early 1990s and less than 800,000 in 1986.
In the twelve months ending Q3 2012, approximately 1 in 390 people became insolvent. This is down from 1 in 382 in the previous quarter. As Figure 4 shows, 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."
The statistics have been picked up by the press. The Financial Times notes that the corporate insolvency figures are the lowest since the economic crisis began. The BBC have drawn attention to the marked fall in Scottish insolvencies. Accountancy Age have highlighted how administrations are at a five year low. Accountancy Age have also drawn attention to the fact that DROs have overtaken bankruptcy for the first time. The Telegraph's prediction that bankruptcy figures would fall was correct! Finally, R3's president Lee Manning observed:
"Corporate insolvency levels fall
“The drop in corporate insolvency numbers is reassuring, especially as it comes after last week’s upbeat GDP figures, showing that Britain exited recession in the third quarter.
“Whilst this decrease in corporate insolvencies is to be welcomed, there are many other businesses stagnating - being kept alive by the forbearance of banks, rather than being shut down as they would have been during previous recessions. Our research shows 146,000 businesses are in fact ‘zombies’, whereby at best they are able to pay the interest on their debts but not reduce the debt itself. Whilst there is always a population of businesses that are treading water, there has been an increase in the number of businesses that are doing so and subsequently delaying their collapse.
“Some of these businesses have been ‘running on empty’ for quite some time now, and with no reserves left in the tank, they may not be able to carry on for much longer. The ‘zombie’ phenomenon is exemplified by the increasing time larger businesses are undergoing a bank led “workout” as funding structures have become far more complicated - it is taking businesses longer to either recover or enter formal insolvency.
“If growth continues, as the latest retail sales and GDP figures suggest, many of these zombie businesses may face closure. We would urge these businesses to seek professional advice in order to lift them out of the ‘zombie zone’, enabling them to withstand unfavourable changes in circumstances and eventually take advantage of growth when it happens.”
Personal insolvency increases quarter on quarter but down from this time last year
“It comes as little surprise that we have seen increases in personal insolvency levels this quarter, as a sizeable proportion of the population have been struggling with their personal finances for quite some time. It appears for some their debt has spiraled out of control, forcing them into insolvency.
“More worryingly is these official figure only paint a partial picture, many others 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, conducted by Comres, in July revealed that 4 million adults said they are likely to seek a payday loan in the next six months.
“Debt concern is also rife amongst the UK population. Research by R3 indicates that over half the population (54%) worry about their current levels of debt, while 51% struggle to make it to payday each month, especially in the 35-44 age group (average of 68%).
“This debt concern may be compounded over the next few months with additional pressures being applied to the purse strings through energy price hikes and Christmas; these seasonal expenditures are likely to be reflected in the next quarter’s personal insolvency figures which may see a further rise.”
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