Looking behind the Q1 2015 insolvency statistics

Looking behind the Q1 2015 insolvency statistics

The Insolvency Service has today published its insolvency statistics for the first quarter (January to March) of 2015. Generally, the number of both corporate and personal insolvencies continues its downward trend, albeit with increases of nearly 10% for both administrations and compulsory liquidations compared to the previous quarter, but still down on the same first quarter in 2014.

To read the Insolvency Service's Q1 2015 statistics release, click here.

Graham Bushby, Partner and National Head of Restructuring and Recovery, and Mark Sands, Personal Insolvency Partner, both of Baker Tilly, comment on these latest figures:

Graham Bushby:

‘With company insolvencies at their lowest level since the fourth quarter of 2007, the latest figures from the Insolvency Service present a positive picture of corporate financial health in England and Wales. However, the statistics don’t really tell the whole story as there are many companies still experiencing significant financial distress and a number of reasons why we could see insolvency levels rising again within the next one to two years.

We have seen a trend for the banks to sell off their non-core bad debt books to private equity groups. As these groups work through those debt books, they are prioritising those firms that they can realise assets from first. However, as they start to focus on the more distressed companies in the portfolios, they may then be left with little choice but to enter them into some kind of insolvency procedure.

We are also seeing a significant number of companies servicing their debts on an interest only basis. By doing this many of them are avoiding entering into insolvency procedures, but they are also failing to pay off any capital. If we see a rise in interest rates and inflationary pressures beginning to emerge, this could leave many companies in a vulnerable position.

A more buoyant market also brings with it a risk of overtrading, so companies need to keep a close eye on their cash position to ensure they don’t get into trouble.’

Mark Sands:

‘Personal insolvencies hit a record high in the first quarter of 2010 at 35,682 and no doubt in the run up to the General Election the Coalition will be delighted to see that at the end of this term, the figures are now at their lowest since 2005. There are, however, a number of factors that have contributed to this. We saw a significant drop in lending in 2008, which has eventually left less people in serious financial difficulty today. As well as this, we are seeing lower levels of personal debt and less people borrowing outside of their means due to more stringent affordability checks by creditors. This is resulting in individuals being less likely to need to enter into official insolvency procedures to get themselves out of financial trouble. Also, because creditors are showing more forbearance, people are now approaching them directly to arrange repayment plans.

The key decline we are seeing this quarter is in IVAs, which are at their lowest levels since the first quarter of 2009. Over the last decade, we have seen a steady decline in overall personal insolvency levels with DROs and Bankruptcy numbers dropping first. For five years now IVA's have remained within a narrow band. This is due to more people preferring to enter into five year plans and clear their debts than enter into a DRO or Bankruptcy where the choices for the debtor are reduced; IVAs offer more flexibility. These statistics are showing that IVAs are now catching up with the other insolvency procedures available.

Perhaps this is the first real sign that we are working our way through the problems of the credit crunch. Because of this renewed confidence people and creditors have in the country’s financial health, new lending is now starting to rise, so although it is looking likely that the 2015 will see the lowest level of personal insolvencies in ten years, we could start to see numbers creeping up in the coming years.’

The views expressed in this blog post are not necessarily those of the proprietor.

Graham's and Mark's comments first appeared on www.bakertilly.co.uk.

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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.