Calm before the storm?

The statistics released today by the Insolvency Service show that in 2015, annual company insolvencies were at their lowest level since 1989, whilst insolvencies for individuals were at the lowest level since 2005. The decrease in compulsory liquidations (where the company is wound up through the court) was particularly marked, falling to the lowest figure since 1981. In individual insolvencies the biggest drop was seen in individual voluntary arrangements (IVAs) which were at their lowest since 2008.

Overall an estimated total of 14,629 companies entered into an insolvency process in 2015, of which 2,874 were wound up through the courts and 9,981 entered creditors’ voluntary liquidation (down 23% and 4% respectively on the previous year). The number of administrations and company voluntary arrangements also showed a marked decline. A total of 79,965 individuals were subject to formal insolvency in 2015, of which 39,993 entered into an IVA and 15,797 became bankrupt (down 23% and 22% on the previous year). Those subject to debt relief orders (DROs) also decreased to 24,175, the lowest annual total since DROs were introduced in 2009.

So all good news then? Not necessarily. The introduction of a substantially higher debt threshold for the sum which needs to be owed before a creditor can institute bankruptcy proceedings, combined with the increase in court fees for issuing proceedings is likely to have impacted upon the numbers of bankruptcy and compulsory winding up orders obtained, but will not have affected the number of individuals or companies which are in effect insolvent.

Levels of personal debt are still on the increase and new research from RFA indicates that some 270,000 companies have reported severe financial stress in the past three months, either due to legal action, or because of deterioration in sales, working capital, profit or escalating costs. Whilst this does not mean that all of those companies will face formal insolvency proceedings, it does indicate the need for companies and individuals to ensure they seek professional advice early on their options to enable them to weather the economic storm which may be on the horizon.