Crunching the numbers—assessing the latest insolvency statistics

Crunching the numbers—assessing the latest insolvency statistics

Restructuring & Insolvency analysis: What do the latest corporate and personal insolvency statistics released by the Insolvency Service for Q3 2014 tell us about the insolvency landscape?

Original news

Insolvency Service publishes Q3 insolvency statistics

The number of company liquidations in England and Wales decreased by 11.7% in the period July to September 2014 compared with the same period in 2013, newly published official statistics on insolvencies has shown. The statistics, released by the Insolvency Service, also show the number of company voluntary arrangements and receiverships were lower than in 2013.

What do the latest statistics show?

While there has been an increase pretty much across the board in the number of corporate insolvency cases since the previous quarter (compulsory liquidations being the exception), the number of individuals entering into a personal insolvency process has decreased. However, these statistics should be viewed on a longer-term basis to gain a better picture. Compared to the same quarter in 2013, the number of corporate and personal insolvency cases has decreased, with only debt relief orders (DROs) being the exception.

Corporate insolvency numbers

Although the number of administrations increased by 16.9% over the last quarter, in total, the actual number of administrations, creditors’ voluntary liquidations (CVLs), receiverships and company voluntary arrangements (CVAs) increased by 86 cases. The decrease of 12.4% in the number of compulsory liquidations of 12.4% was represented by 121 fewer winding-up orders being made.

The longer-term trend, however, sees a decrease across the board in the number of corporate insolvency cases. When compared against the figures for the same quarter in 2013, the percentage decreases were 5.3% for CVAs through to 30.8% for receiverships. CVLs, which are by far the most common form of corporate insolvency process, have seen a decrease of 13.3% since the same quarter in 2013.

In the 12 months ending Q3 2014, one in 186 active companies went into liquidation (the liquidation rate)—meaning that, as the Insolvency Service has pointed out, the liquidation rate was at its lowest level since 1984.

Personal insolvency numbers

The number of bankruptcy orders, DROs and individual voluntary arrangements (IVAs) were down on the previous quarter and also (apart from DROs) down on the same quarter in 2013.

The number of bankruptcy orders in Q3 2014 (4886—the lowest level since Q1 1999) was down by 10.7% on the previous quarter, and 18.7% on the same quarter in 2013. These decreases are largely down to the introduction of DROs in April 2009 and the resulting decrease in debtor petitions (from over 16,000 to fewer than 4,000 in number).

The number of IVAs was down only 1.9% on the same quarter in 2013, maintaining a fairly consistent trend, other than a small spike in Q2 2014. IVAs represent just over 50% of all personal insolvency cases.

What do these statistics tell us?

Conclusions should not be jumped to by looking at the latest quarter’s statistics in isolation. The longer-term trend needs to be assessed—but even then, is that telling us the real story?

It would be reasonable to conclude that the general downward trend in the number of both corporate and personal insolvencies will continue over the coming quarters as the economy continues to stabilise.

What these statistics cannot assess, however, is the financial position of those companies and individuals that have avoided entering into an insolvency process. In particular, how will an increase in interest rates affect these trends? There is, of course, the well-reported issue of zombie companies who are able to survive because they are able to service their existing banking facilities. An increase in the interest rates could affect their ability to do this, either by way of enforcement action from their bank or from creditor pressure if funds are diverted to service the interest rate increase.

With regard to personal insolvency, the individual’s home is more often than not their sole, or at least most significant, asset. Where individuals have equity in their property, it can be most cost-effective to make that available to creditors through an IVA rather than through a bankruptcy. In addition, even if the property has no equity, low interest rates can mean there is more in the way of surplus income that can be distributed. An increase in interest rates will impact on surplus income and, in more serious cases, may erode any equity in the property through arrears and any costs incurred by mortgage companies if they seek to repossess.

Further Reading

 If you are a LexisPSL Subscriber, click the links below for further information:

Practice and procedure for the drafting, presentation, service and advertisement of a winding-up petition to the court by a creditor of a company registered in England and Wales

How to present a bankruptcy petition and the documents you need to complete

How to commence a voluntary winding up

How do you implement an individual voluntary arrangement and what is the procedure?

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First published on LexisPSL Restructuring and Insolvency

Stephen Leslie, solicitor in the Lexis®PSL Restructuring & Insolvency team.


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About the author:

Stephen qualified as a solicitor in 2005 and joined the Restructuring and Insolvency team at Lexis®PSL in September 2014 from Shoosmiths LLP, where he was a senior associate in the restructuring and insolvency team.

Primarily focused on contentious and advisory corporate and personal insolvency work, Stephen’s experience includes acting for office-holders on a wide range of issues, including appointments, investigations and the recovery and realisation of assets (including antecedent transaction claims), and for creditors in respect of the impact on them of the insolvency of debtors and counterparties.