Corporate and individual insolvency levels rising

07-11-2017

Levels of corporate insolvency are starting to inch up, while personal insolvency levels are also rising, with the number of individual voluntary arrangements (IVA) signed in the past three months at their highest level since the option was first introduced 30 years ago.

Insolvency Service data for the period July to September shows total company insolvencies decreased compared with the unusually high level in the previous quarter, when a large number of connected personal service companies (PSCs) entered liquidation. There was a 12.5% drop compared to Q2 2017, caused by a one off event of 1,131 connected PSCs entering creditors’ voluntary liquidations (CVL) in Q2 2017 following changes to claimable expense rules.

However, the Insolvency Service points out that compared with last quarter’s underlying numbers, company insolvencies rose over the three months. Excluding the PSCs, the underlying number of companies entering insolvency in Q3 2017 rose by 15% compared to Q2 2017 and by 14.5% compared with the same quarter in 2016.

This was driven by a rise in underlying CVLS. The estimated underlying number of CVLs in Q3 2017 rose by 22.2% compared with Q2 2017, and by 21.2% on Q3 2016.

Adrian Hyde, president of insolvency and restructuring trade body R3, said: ‘Corporate insolvency numbers have bounced around over the last couple of quarters as a result of the impact of tax quirks and timely economic boosts, including summer’s surprise drop in inflation. This quarter’s rise in underlying insolvencies, however, moves things back towards the trend of growing insolvency numbers we’ve had since the middle of 2016.

‘The prolonged fall in insolvencies we saw between 2010 and 2016 appears to have begun to change direction.

‘R3’s own statistics on the growth and distress levels reported by businesses show the numbers of businesses with signs of growth have fallen from recent record highs, while the numbers of businesses with signs of distress are increasing from recent record lows.’

Insolvency Service figures show total individual insolvencies in Q3 2017 were 10.6% higher than in the previous quarter, and 7.7% higher than the same quarter the previous year. The number of IVAs in Q3 2017 rose 18.3% compared with Q2 2017, reaching the largest quarterly number of IVAs since they were introduced in 1987.

Hyde said: ‘Falling real wages and exhausted credit limits may have helped to push personal insolvencies up again. Aside from a couple of dips, notably in the previous quarter, there has been a pretty consistent upward trend in insolvencies since the middle of 2015.

‘It’s important, however, to approach the personal insolvency statistics with a touch of caution. IVAs, which are often used to help resolve problem consumer debts, may be at a record high, but rises and falls in these numbers can be linked to changes in the market and access to IVAs rather than individual indebtedness. Not all of the increase can be put down to this, but it is something to bear in mind.’

Hyde also pointed out that the official insolvency statistics do not tell the full story of how many people are struggling to repay their debts, arguing that access to statutory debt solutions can be just as important a factor in driving the numbers up or down as improving or worsening finances.

‘There may be thousands of people in non-statutory debt management plans, for example, sometimes because they can’t access a statutory solution which might be more appropriate to their situation. These plans are regulated by the Financial Conduct Authority but there is no information available about the extent of their use,’ he said.

Earlier this week the government announced plans to introduce a six-week ‘breathing space’ from creditor pressure in order for individuals to get advice and support in resolving their debts.

Q3 insolvency statistics July – September 2017 are here.