R3 President comments on Insolvency Service Statistics - Personal and Corporate levels are down
Lee Manning, R3 President comments on the Corporate insolvency figures:
“While retail is facing its own particular set of challenges, the big picture is that corporate insolvency overall is down 3% on the previous quarter and 1% year on year. At least things are not getting worse, even if this feels counter-intuitive with the UK economy firmly back into a double dip recession and other threats from the Eurozone.
“However, the increase of 41% in CVAs (even discounting the 104 companies relating to Southern Cross) is intriguing and shows the rescue culture at forefront of people’s minds – with the creditor community arguable being more flexible. These are hard times for everyone, and perhaps the creditor community would rather take a hit than see a company go under entirely.
“Even so, many businesses are stagnating; kept alive by the forbearance of banks, rather than being culled as they were during previous recessions. Insolvency trade body R3’s latest Business Distress Index recorded nearly one in ten (8%) of businesses are ‘zombie businesses’, able only to service the interest on their debt but not reduce the debt itself. When growth finally kicks in, many of these zombie businesses may well face being shut down, as they have little value in them.
“To put it simply – there is no significant activity out there. While the drop in corporate insolvencies is to be welcomed, we could yet see a clear out of insolvent businesses, even in this atypical recession. We would urge these businesses to seek professional advice in order to lift them out of the ‘zombie zone’, which would enable them to withstand unfavourable changes in circumstances and eventually take advantage of growth, when it happens.”
Lee Manning continues, commenting on the Individual insolvency figures:
“Levels of personal insolvency are down 4.6% on the quarter and 10.2% on the year. This could be a sign that there is less credit out there so people are having to act more responsibly, and tighten their belts.
“However, we should be aware of the group just outside the official figures. Roughly one in ten of GB adults can only afford the interest charges on their credit cards, according to figures from insolvency trade body, R3. In the short term, it is perfectly possible to survive in this state – but there must be some sort of strategy for getting out of it. My worry is that this group will linger in this state and remain vulnerable to any further unfavourable change in circumstance, such as an interest rate rise or loss of employment.
“Over the past two years formal insolvency numbers have actually decreased but we know concern over debt is an issue for over half (54%) of GB adults, according to R3. This is backed up by the finding that 51% now struggle to payday (up from 39% at the start of 2012) – so this worry is more than just an uncomfortable nag at the back of one’s mind. The real-time consequences of this means almost 4 million (3,915,866) GB adults are now considering taking out a payday loan, while a quarter of us (28%) currently have no savings.
“Seeking professional advice is better than merely wishing the struggle away – a proactive approach now could well stave off insolvency later.”
R3 Press Office