Insolvency statistics what do they mean?

The latest insolvency statistics for England and Wales according to The Insolvency Service for Q3 of 2015 have recently been published.

The government agency’s published figures for corporate insolvency show that 3,539 companies entered insolvency in Q3 a 10.2% fall on the same period in 2014.

So what is the breakdown of these 3,539 insolvent companies? I hear you cry.  Unsurprisingly the majority of the corporate insolvencies are made up of an estimated 2,451 Creditors’ Voluntary Liquidations, a 4.3% decrease compared to the same period in 2014.

Compulsory Liquidations have also fallen at a similar rate of 4.3% compared to Q3 in 2014.  A total of 612 companies were subject to a compulsory winding-up order in Q3, 29.2% lower than in 2014.  The dramatic drop in Compulsory Liquidations is the main driver of the overall decrease in total company insolvencies and represents the lowest number of Court Winding Up since 1989.  It is reported that there was only one Administrative Receiver appointed in 2015.

Turning to the procedures that are traditionally considered to be part of the rescue culture, 363 companies entered into administration in Q3 of 2015, a decrease of 5.5% compared to 2014.  Conversely 111 Creditors’ Voluntary Arrangements (CVAs) were approved in Q3 alone, a huge increase of 32% on the previous quarter but still an overall decrease of 14% when compared to 2014.

In other news the number of personal insolvencies increased nearly 3% in Q3 to more than 19,000. The Insolvency Service’s latest stats show that 19,683 people became insolvent between July and September a 2.8% rise on the previous quarter but an overall decrease of 18.5% compared to Q3 in 2014.

The main driver for the 3% increase in personal insolvency was attributed to the rise in approvals of Individual Voluntary Arrangements (IVAs).  The number of IVAs increased more than 9% on the previous quarter to 10,197, but overall were still 18% lower than 2014.

Meanwhile and coincidently mirroring its corporate counter-part in Compulsory Liquidations, the number of bankruptcies was similarly at its lowest level since 1990.  There were a total of 3,857 bankruptcy orders made in Q3 equating to a 21.4% drop on the same period in 2014.

This is no surprise as the number of bankruptcy orders has been on a decreasing trend since 2009 which coincided with the introduction of Debt Relief Orders (DROs). The latest update on the conditions for a DRO can be found in my blog of 2 March 2015.  For completeness there were 5,629 DROs granted in Q3, a 3.5% decrease compared to the previous quarter.

So lots of facts and figures but what does it mean? Why should we be bothered?  The lay person would be forgiven for interpreting these figures as inevitable in a recovering economy, however it is not as simple as all that.  Despite the much publicised economic recovery we have also recently seen the failure of certain high profile UK steel businesses who, together with the manufacturing sector, are struggling to cope with cheaper imports/commodities versus the strong pound, mixed in with higher business rates, energy costs, payroll costs and pension burdens.  Outside of these troubled sectors and with growing confidence in the economic recovery, we would expect to see some businesses in their eagerness to jump on the recovery train and grow their business, potentially over commit themselves and fall into the trap of overtrading.

Let us also not forget the impending threat of an interest rate hike which admittedly is likely to be minimal, but nonetheless may be sufficient to cause real problems not just for highly geared businesses but also for individuals who may find themselves suddenly unable to service their mortgage repayments.

Mike O’Connor, Chief Executive of StepChange Debt Charity, was quoted: “It is good to see bankruptcy and Debt Relief Orders reducing, but the fact that overall personal insolvency levels are rising is a reminder that personal debt remains a persistent problem.  He went on to say; “It is also important to remember that insolvency figures don’t reflect the full extent of problem debt. More than 600,000 people contacted us for debt advice last year and insolvency was the right option for just 20% of them.”

In conclusion it’s important to look behind the figures and identify and plan for the problems that can arise from a recovering economy as much as a recession by seeking advice early so that the right steps can be put in place.