Q1 2014 insolvency statistics – R3 comments
Commenting on the quarterly rise in corporate and personal insolvencies, R3’s president Giles Frampton says:
The first quarter of the New Year usually sees personal insolvencies climb slightly. Typically, people struggling with debts will put off dealing with their problems until the post-Christmas period.
As we’d expect, the increase is mostly due to rising numbers of Individual Voluntary Arrangements (IVAs). These are associated with low value debt problems and people struggling with the cost of living. One thing we’ve noticed recently is IVA proposals with lower and lower ‘surplus income’ payments – people just can’t afford to offer to repay more.
Although we may not see a new upward trend in insolvencies in the short-term, there is still plenty of pressure on personal finances. Wage growth is finally keeping pace with inflation, but this won’t have an immediate impact. A rise in interest rates would add further pressure to borrowers’ personal finances.
It’s important to understand that the official statistics do not tell the full story about insolvency in England & Wales. The Debt Management Plan (DMP) industry has ballooned in size in recent years, but the number of people in DMPs remains unknown.
There are several, growing, barriers to people entering a formal insolvency procedure – the court fees associated with bankruptcy went up earlier this month, for example – which are forcing people down the informal insolvency route instead.
Many DMP providers would have little to fear from increased interest from regulators, but there are murky parts of the market where there appears to be little genuine concern for helping those overwhelmed by debt to get back on their feet. It’s very concerning that people in DMPs may not necessarily have the benefit of qualified, objective advice.
It’s interesting to see bankruptcies have had their first quarterly increase since 2012 – but bankruptcy numbers are still well down on where they were this time last year.
For the past few years, the first quarter of the New Year has been a tough one for businesses.
For those businesses reliant on a good Christmas period, failure to hit sales targets can lead to problems in January and February. Similarly, with the end of some businesses’ financial year approaching at the end of the quarter, financial difficulties may have come to a head.
Having fallen from their peak during the recession, corporate insolvency numbers have been relatively stable for a while, although they haven’t fallen as far or as fast as they ordinarily do after a peak.
Economic recovery is very welcome, but extra activity does put added pressure on businesses that might not have the resources or ability to adapt quickly enough. This might have helped push numbers up from last year.
As with personal insolvencies, we think it’s unlikely we’ll see any major changes in corporate insolvency numbers until interest rates are raised.