Warnings over rise in bankruptcies

The latest insolvency statistics published for Q3 from July to September 2018 reveal there were 25,551 individual insolvencies in Q3 2018, 55.8 percent of which were individual voluntary agreements (IVAs), 27.7 percent were debt relief orders and 16.5 percent were bankruptcies.

The number of IVAs in Q3 2018 fell 18 percent to 14,040 compared with a record high in Q2 2018, when there were 17,114. Until this quarter, there had been a general increasing trend in IVA registrations since Q2 2015, while debt relief orders increased for the fifth consecutive quarter.

Louise Brittain, partner and head of contentious insolvency at Wilkins said that typically, people will choose to enter individual voluntary arrangements (IVAs) but the figures show that has been replaced by bankruptcy.

“People are choosing to voluntarily write off their debts to go into bankruptcy or their creditors are making them bankrupt,” she said.

There has been an increase in the rate in personal insolvency from 2016 (18.8 percent) to 2018 (22.7 percent) which has been steadily growing over the last two years, something that Brittain said she expects to continue as mortgage rate rises continue to increase and unsecured debt increases.

“The most interesting figure is that IVAs have declined significantly from 17,813 on the same quarter last year to 15,845, this year meaning people are choosing not to propose a long pay back period for their debt, creditors are tightening the requirements of these arrangements and as a result, people are choosing the one-year process of bankruptcy as opposed to the three-to-five year process of an individual voluntary arrangement.

“Debt relief orders where debt is underwritten under £20,000 has increased by 11 percent this quarter so more people with more debt are choosing to go bankrupt rather than going down the route of IVAs.

“There has also been a decrease in company voluntary liquidations of 27 percent and a big increase of 26 percent in businesses going into administration because I think business owners are letting their companies be wound up or their business be struck off.”

Brittain also criticised the government for the “draconian measures” introduced in this week’s Budget which favour the HMRC rather than businesses.

She said: “This budget has given the HMRC preferential status again in insolvencies which had been abolished in The Insolvency (Amendment) Rules in 2010 but it has now been brought it back in.

“That means the HMRC is paid first in insolvencies which will have a massive impact because many suppliers will now receive absolutely nothing.

“It is going to make it very, very difficult for small businesses and start-ups to borrow any money that isn’t secured by directors’ personal guarantee particularly where they don’t have tangible assets worth securing.”