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Insolvencies: Ups and Downs

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According to the statistics published on 1 November 2013 by the Insolvency Service, the number of corporate insolvencies are down and the number of individual insolvencies are up in the third quarter of this year.

hlw Keeble Hawson logoCorporate Insolvency

On the whole corporate insolvencies have been falling throughout 2013 albeit marginally.  In the second quarter there were a total of 3,976 Liquidations, compared to 3,875 in the third quarter, so not a massive change but you’d expect the third quarter to be higher after a quiet summer has caught businesses up.

Over the last 12 months the highest number of Liquidations were in the construction sector with the wholesale and retail sector experiencing the second largest number of Liquidations.

This decline in numbers has been mirrored in other corporate insolvencies including Receiverships, Administrations and Company Voluntary Arrangements.

Could the decreasing number of corporate insolvencies be a sign of the economic recovery?  It certainly coincides with a growth in the economy, so it looks promising.  According to The Office for National Statistics, the UK economy is looking at growth of 1.5% over 2013. However this recession has thrown up lots of unexpected trends and it is hard to say what factors are at play. Ordinarily, economic growth following a recession creates an increase in the number of corporate insolvencies and we think this will be the case again, maybe after a longer delay due to interest rates being kept low.

Individual Insolvency

There were 26,030 individual insolvencies in England and Wales in the third quarter of 2013, an increase from the previous quarter but a substantial decrease from the same period last year (down by 7.3%).  2013 has shown a gradual increase in individual insolvencies, perhaps given the steady decline in individual insolvencies over the last four years and consistently low interest rates but maybe spurred on by the ‘cost of living crisis’ much heralded by politicians finally catching up with squeezed households.

Interestingly, the number of Debt Relief Orders which are a new less onorous procedure for smaller scale insolvencies were higher than the total Bankruptcies for the fifth quarter in a row and the number of Individual Voluntary Arrangements (a less formal insolvency solution than bankruptcy) over the last 12 months have been higher than the number of Bankruptcy Orders.  So it seems to us that the market is changing as it is individuals at the bottom end of the economic pile who are really suffering right now.

Our predictions:-

  • For the next quarter we will see a further decrease in corporate insolvencies and individual insolvencies;
  • However expect an upturn in corporate insolvencies in the new year which we see as a slowly increasing trend over the next few years. We don’t see a floodgate but we do expect to see more activity;
  • Individual Insolvencies are largely governed by factors such as the jobs market, interest rates and cost of living. It is entirely likely  that the recent spike in consumer debt will catch an increasing number of individuals out and the figures will rise again during 2014

So summing up, we live in interesting times and the much vaunted green shoots may still not stave off troubles ahead.
 

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