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Personal and corporate insolvencies on the rise

The number of personal insolvencies in the three months to March were nearly 16 percent higher than a year ago, according to the Insolvency Service.

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Amber-Ainsley   Pritchard
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personal insolvencies
personal insolvencies

The Insolvency Service’s statistics for the first quarter of this year show that personal insolvencies were 15.7 percent higher than March 2016. Statisticians also found that personal insolvencies in England and Wales rose 6.7 percent from the last three months of last year.


There were 24,531 individual insolvencies in the first quarter of this year, of which 59 percent were IVAs, 25 percent debt relief orders and 16 percent bankruptcies.


Adrian Hyde, president of insolvency and restructuring trade body R3, said: “The personal insolvency increase has been driven by further rises in IVA numbers – which is more of an indication of easier access to IVAs than increasing financial problems – but it’s notable that bankruptcies have begun ticking up a little.”


He said personal insolvency rates are still low compared to a few years ago and there has only been a small rise in bankruptcies.


The number of personal insolvencies in Scotland also rose - by 18 percent from the financial year ending March 2016 to the same period this year, according to provisional figures from the Accountant in Bankruptcy (AiB).


The trade body said rising bankruptcies could be a better indicator of worsening debt problems as access is less flexible – although the introduction of an online application process in April 2016 has made things simpler for people in debt.


Hyde said these figures do not give the full picture of personal insolvency in England and Wales as there are potentially hundreds of thousands of people in non-statutory debt management plans, yet no statistics are recorded for them.


He said: “Better information would give us a better understanding of the personal insolvency landscape. A register of debt management plans would be a good step forward.”



Corporate insolvencies

Corporate insolvencies rose by nearly five percent from the first quarter of 2017 from the previous three months – they are also about five percent higher than this time last year. This excludes the 1,796 connected companies that entered insolvency procedures in the fourth quarter of last year.


Hyde added: “Having been flat last year and having fallen slowly from a post-financial crisis peak before that, corporate insolvency numbers are starting to move up again. Low interest rates, creditor forbearance, and a growing economy mean insolvency numbers are still close to record lows but the past year and a bit has been much more challenging for businesses.”


Challenges that affect these statistics, according to R3, could be the fall in the pound, the introduction of the National Living Wage and the rollout of pension auto-enrolment to smaller firms.


Hyde said: “It’s worth noting, however, that insolvencies usually rise in the first three months of the calendar year as many companies come to the end of their financial year and have to make some difficult decisions.


“Insolvency numbers should be watched closely over the next year to see whether recent rises are just a blip or the start of a new upwards trend.”


Insolvency Service crackdown

Just after the insolvency figures were released, a separate study showed the number of company directors receiving longer bans for corporate wrongdoing has hit a six-year high, according to accountancy firm Moore Stephens.


The firm said that in 2016 the Insolvency Service handed out 573 director disqualifications lasting more than five years – the highest figure since 2010/11.


Moore Stephens said this is part of the Insolvency Service’s crackdown on misconduct by company directors.


The organisation is taking tougher enforcement action on issues including “phoenixing”– transferring assets to a new company to avoid repaying creditors, using company money for personal benefit and much more.


Mike Finch, partner at Moore Stephens, said: “The Insolvency Service is now tougher than ever on directors they can prove have broken the rules and left creditors out of pocket.


“Directors whose companies are in trouble need to make sure they are not tempted to break the rules in a misguided attempt to save jobs. They are more likely than ever to get found out, and to severely damage their future prospects.”


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