Steven Law, President of R3, the insolvency trade body, comments on today’s Q2 statistics from the Insolvency Service
“The fall-out from the recession is still with us as today’s personal insolvency figures are running at 5% higher than last year, totaling 34,743 individuals in the second quarter. Interestingly, debtors are opting for the alternatives to bankruptcy (IVAs and DROs), perhaps put off by the stigma and initial cost involved. The newer ‘lighter touch’ Debt Relief Orders have trebled, filling the gap left by today’s decrease in bankruptcy and now make up nearly one fifth of individual insolvencies.
“Unfortunately, the personal insolvency figures are just the tip of the ‘debt iceberg’. The true size of the UK’s debt problem remains hidden as insolvency industry estimates there are an additional 500,000 people currently in informal debt management plans and close to a million people are struggling with their debts and have not yet sought help.
“With major cuts in public spending now taking effect, these numbers are almost certain to rise still further, and for many of those affected, it might well be the first time they’ve had to deal with serious financial problems. The sooner someone seeks advice the more options they will have available to them.”
“In regards to corporate insolvency, this recession has been atypical, and businesses can’t afford to be complacent. We would expect corporate insolvencies to rise after a recession as they did in previous recessions, but the figures only show a 0.5% increase in Company Liquidations from the last quarter. We suspect these increases in corporate insolvency may not show until the end of this year or next.
“This is due to factors that are unique to this recession: HMRC’s Time to Pay scheme, which allows struggling businesses to defer their tax payments, has been extremely successful in keeping businesses alive - there is currently £5.13bn of tax delayed under this scheme; and historically low interest rates has kept the cost of servicing debt relatively cheap.
“The early stages of recovery are typically a challenging time for businesses as creditors begin to be more aggressive in their debt collection, but, from what I am seeing, creditors are being more lenient than in previous recessions. If you ask two experts their predictions for the future you are likely to get two very different answers, but we can expect to see a rise in corporate insolvencies when interest rates rise and as the Time to Pay facility becomes squeezed.”
Steven Law, R3 President