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Q3 2018 insolvency statistics – R3 comments

Commenting on the Q3 2018 (July-September) England & Wales insolvency statistics (published this morning by the Insolvency Service), Duncan Swift, Vice President of insolvency and restructuring trade body R3, says:

Corporate insolvencies

  • Underlying corporate insolvencies rose by 9% in Q3 compared to Q2 2018, and rose by 19% compared to Q3 2017.

“This is the first time we’ve seen more than 4,000 corporate insolvencies in one quarter since the start of 2014. So far, 2018 has been a tough year for English and Welsh businesses, with insolvency numbers equal to or much higher in every quarter than in the same period last year.

“The key causes of insolvencies seen by the insolvency profession are familiar. Rates problems, particularly for retailers, are frequently mentioned, and the Chancellor’s rates-relief announcements in the Budget have come too late for some. It’s worth noting that high profile insolvencies can have a knock-on effect for others, too. For every struggling retailer unable to pay its debts, there will be numerous suppliers as well as shop-fitting or delivery firms who come under pressure, while there have been well-publicised troubles in sectors like construction, too.

“R3 members have picked up on a number of extra concerns recently. Uncertainty over the shape Brexit will take has led to decision-making delays at some large companies, which will have had an impact on their smaller suppliers expecting new contracts or investment. Infrastructure problems have started to be mentioned, too: traffic congestion is hurting companies, especially those based in city centres, in terms of longer delivery times and loss of productivity.

“The outlook for businesses is still difficult. Negative consumer confidence, high personal debt levels, renewed upwards pressure on wages, and possible future interest rate rises will all have to be navigated. On the insolvency front, yesterday’s Budget saw the Government announce plans to partially restore HMRC’s preferential position in insolvencies, a move which could have unintended consequences for insolvency numbers. With HMRC legislating its way towards the front of the queue for creditor repayments after company insolvencies, other creditors will receive less back after insolvencies, with a knock-on effect for their own finances. The change may also affect banks’ appetite for lending to distressed businesses, jeopardising business rescue. This will be something to watch in 2020 when the changes are due to kick in.

“In unsettled times, unscrupulous advisers will seek to take advantage by offering unworkable solutions to companies looking for guidance. We would advise checking the credentials of all sources of advice, and sticking to advisers who are regulated, licenced, and accountable.”

Personal insolvencies

  • Personal insolvencies fell 11% from Q2 to Q3 2018, and are 2% lower than in the same quarter in 2017.

“The sharp drop in personal insolvency numbers is welcome, although it's worth paying attention to the increases in Debt Relief Orders and bankruptcies. These figures tend to be a better indicator of serious indebtedness than Individual Voluntary Arrangements, which account for the bulk of personal insolvencies.

“Debt Relief Orders (DROs) help those unable to pay even very low value debts, while bankruptcy tends to be used when there are significant debts to be repaid. Individual Voluntary Arrangements (IVAs) are useful for repaying consumer debts, although IVA numbers can be affected by changes in the debt management market.

“A decade of non-existent or sluggish real wage growth has clearly had an impact on people’s finances. Low unemployment levels are a bright spot, but are only half the picture when work doesn’t pay enough to cover even the basics. There are signs that more and more people are hitting the limit of what their budgets can stretch to. And although rates of consumer lending growth have slowed, outstanding personal debt is still heading towards record levels.

“While the headline rate of inflation has fallen recently, there is a lot of variation within this. The inflation rate for food has, until recently, been higher than the headline inflation rate, for example. The cumulative effect of rises in the cost of groceries will have hurt those on low incomes the most, and might explain the gradual rise of DRO numbers. “There was an interest rate rise in the middle of the last quarter, although this was so small that it is unlikely to have had a significant impact on insolvency numbers. However, continued incremental rate rises will eventually see those in debt facing much higher debt servicing costs than would have been the case a year or two ago. A generation of borrowers has never experienced interest rates over 1%, so could be in for a shock.

“Plans announced in the Budget for zero-interest loans for indebted individuals may help, but they won’t be enough by themselves to get people back on their feet after facing financial trouble: they must be accompanied by high-quality, unbiased and professional advice, from a qualified and reputable source. The earlier such advice is sought out, the more options people have available to them.

“The Budget Red Book contained welcome confirmation of plans to introduce a ‘Breathing Space’ from creditor enforcement for people unable to pay their debts. However, it is important to keep in mind that a ‘Breathing Space’ should not be a debt solution in itself, and should be used to help people get advice on which of the many existing procedures would work for them.

“As ever, it’s important to remember that the official personal insolvency figures do not tell the whole story. Personal insolvency numbers can be affected by how easy each procedure is to access, while thousands of people are using a non-statutory debt management plan. These plans aren’t recorded by government, but are a key, unseen part of UK personal indebtedness. The official insolvency statistics are just the tip of the iceberg.

“Talking to a regulated, qualified, and professional advisor is vitally important for anyone who is concerned about their personal financial situation. Grasping the nettle and opening up to a third party may feel impossible, but once done can bring a sense of relief. There are lots of good sources of free, unbiased advice out there, and we urge all those who are worried to seek out support as soon as possible.”

Notes to editors:

  • R3 is the trade body for Insolvency Professionals and represents the UK’s Insolvency Practitioners.

  • R3 comments on a wide variety of personal and corporate insolvency issues. Contact the press office, or see for further information.

  • R3 promotes best practice for professionals working with financially troubled individuals and businesses; all R3 members are regulated by recognised professional bodies
  • R3 stands for 'Rescue, Recovery, and Renewal' and is also known as the Association of Business Recovery Professionals.