Analysts warn of lag as insolvencies rise

INSOLVENCY figures for England and Wales rose to an all time high last year according to the latest Government statistics.

The Insolvency Service said there were 134,142 individual insolvencies recorded – equating to approximately one in every 320 adults.

West Midlands analysts have said the situation will worsen this year before things start to improve and have warned of an insolvency lag which will fail to keep pace with any recovery.

The figure is up by more than a quarter on the levels recorded in 2008 and well above the previous record of 107,288 in 2006.

There were 35,574 individual insolvencies in the fourth quarter alone – an increase of almost 25% on the same period in 2008.

A total of 74,670 people were made bankrupt – up 10.7% on 2008 – while 47,641 Individual Voluntary Arrangements were agreed – an increase of 21.8% compared with 2008.

There were 4,566 compulsory company liquidations in the fourth quarter of last year, down 1.7% on the previous quarter and down 1.1% compared with the same period a year ago.

However, for the year as a whole, compulsory liquidations stood at 19,077 – an increase of 2.8% on 2008.

Recession is the major driver with rising unemployment and the effects of the credit crunch taking its toll on people’s incomes and company cashflows.

The effect has been felt across the industrial spectrum although the manufacturing, construction and retail sectors are especially badly affected.
 
James Martin, Midlands region chairman of insolvency trade body R3 and partner at the Birmingham office of Begbies Traynor, said that despite the insolvency figures for the fourth quarter being significantly below expectations for corporate insolvency at this point in the recession, people should not be fooled into thinking the worst was over.

“The last few months of 2009 were relatively quiet for insolvency practitioners as the Government’s ‘Time To Pay’ scheme kept some businesses away from insolvency and banks broadly continued to lend their support. This has a knock-on effect on personal insolvency as jobs are preserved and incomes remain steady,” he said.

“We know from previous recessions that, although the overall economic outlook is brighter, this can still be a dangerous time for businesses as creditors attempt to collect money owed and policy makers start to cut measures which were aimed at helping those in financial trouble. The MPC’s decision to hold interest rates at 0.5% suggests they recognise the risk of a double-dip recession.”

“Our members have identified an ‘insolvency lag’ which shows it can be years after recovery starts that insolvency figures level off. We expect some 28,000 corporate insolvencies this year in the UK, a 22.8% jump on the figures for 2008 (22,792).  We are also predicting some 154,000 personal insolvencies for 2010, a 22.2% increase on 2008 (128,046),” he added.