Insolvency rates at a five-year low

According to Insolvency Service statistics, which were released yesterday, there were 25,006 individual insolvencies across England and Wales in the first three months of 2013 – a 1.8 per cent drop on the previous quarter and a 12.9 per cent fall compared with the same period a year ago.

Within the figure, bankruptcy orders hit their lowest level since 2002, with 6,663 in the first quarter of this year – a decrease of 27 per cent year-on-year.

Over the same period, company failures plunged to their lowest level since early 2008 in a boost to hopes over the health of Britain’s businesses.

Company liquidations in England and Wales fell 15.8 per cent year-on-year to 3,619 in the first three months of 2013, and were down 5.3 per cent on the previous quarter, according the Insolvency Service.

Bankruptcies have been falling since the introduction of debt relief orders in 2009, which are aimed at people with lower levels of debt but no realistic prospect of paying it off. They have been running at higher numbers than bankruptcy orders since last summer.

The figures show signs of further improvements in people’s ability to manage their finances, after last year’s figures showed that personal insolvencies dropped to their lowest annual levels since 2008.

Continued low interest rates have helped ease some borrowers’ costs and unemployment has not risen to the levels some had feared.

However, some experts believe the official figures do not show the full extent of people struggling with debt, as analysts warn many people are still struggling through the tough economy and remain under pressure from soaring rents, high energy bills and a tough jobs market.

Charles Turner, president of the Insolvency Practitioners’ Association (IPA), said: “The figures do not, in my opinion, reflect the reality of life for a great number of consumers who are undoubtedly struggling as wage growth flat-lines and their household costs continue to increase.

“The reason for this is that bankruptcies are an expensive bureaucratic process which provide poor returns for creditors and so are less favoured as a solution.

“The harsh reality is that many people are still struggling on, trying to make ends meet.”

But while the number of company liquidations was the lowest since the second quarter of 2008, some experts warned there might be worse to come if the plight of “zombie” companies – kept afloat by record-low interest rates – worsens.

Graham Bushby, restructuring and recovery partner at Baker Tilly, said: “While on the face 
of it, a continued decline in formal corporate insolvency is good 
news for the UK economy, zombie companies – those that are just about 
able to survive by servicing the interest on their loans – remain a feature of the UK corporate landscape.”

The liquidation rate of 0.7 per cent of the 2.6 million active companies in England and Wales was down from a peak of 2.6 per cent in 1993 and below the average of 1.2 per cent over the past 25 years.

Data last week showed the economy grew by 0.3 per cent in the first quarter of the year.

Other corporate insolvencies, such as receiverships and administrations, fell 27.5 per cent year-on-year to 935 in England and Wales.

Notable administrations during the quarter include entertainment retailer HMV, camera store chain Jessops and youth fashion chain Republic.

The figures also showed that liquidations in Scotland plunged 70 per cent to 113 year-on-year, and were down 50.5 per cent in Northern Ireland to 55.