R3 comments on Q3 2015 insolvency statistics

Commenting on the quarterly insolvency statistics (for July-September 2015) published by the Insolvency Service today, Phillip Sykes, president of R3, the insolvency trade body, says:

Personal insolvencies

“Personal insolvencies have generally been falling since the recession: although insolvencies are up this quarter from last quarter, they are well below where they were this time last year. Economic recovery is finally making a big dent in insolvency numbers which ballooned pre-2009.”

“IVA numbers have fallen so far and fast over the last year, some ‘bounce’ up is not unexpected.”

“It’s a positive surprise to see that the number of bankruptcies hasn’t risen in the last quarter. From this month, you have to owe at least £5,000 to one creditor before you can be made bankrupt, up from £750 beforehand. There was a chance of a last minute rush of creditors trying to take advantage of the old rules. It’s a good thing this hasn’t happened and creditors may have adopted a ‘business as usual’ approach to their debtors.”

“Although wages are now outstripping inflation, this may have come too late to help some individuals. On the other hand, there may be those who have felt able to ‘splash the cash’ again but who have been caught out.”

“An interest rate rise, whenever it does come, will be a test for many household finances.”

“The next quarter’s statistics will be the first since the changes to personal insolvency legislation relating to bankruptcy and Debt Relief Orders (DROs) thresholds were introduced. The new rules make it easier for people to enter DROs so it will be interesting to see if the predicted increase in their numbers happens.”

Corporate insolvencies

“The numbers of corporate insolvencies continue their long and slow decline since their peak in the recession. Although this week’s growth figures show businesses aren’t exactly flying, not too many are really struggling either.”

“The unique conditions of this recovery – low interest rates and creditor forbearance – meant we never saw the traditional post-recession spike in corporate insolvencies. The circumstances of this recovery have also given businesses the space and time needed to restructure themselves outside of the formal insolvency process. The current low levels of inflation, lack of pressure for wage increases and the strong pound helping importers, may also be assisting businesses at the moment.”

“According to R3’s most recent membership survey, the most common recent causes of business struggles have been the underperformance of particular products, the failure of long-term business strategy, or a mistake by the business. At the moment, it is more likely that businesses are causing their own problems rather than any particular economy-wide headwind.”

“One such headwind could be an interest rate rise, although the timing of this keeps moving beyond the horizon. R3’s last Business Distress Index found one-in-five businesses saying an interest rate rise could cause them to struggle. The other 80% may not be affected directly, but they should think about how a rise will affect consumers as this will have a knock-on effect on them.”

“Easier access to non-traditional finance for businesses may be helping to keep the number of insolvencies down. While the banks are open to lending they remain cautious, but there are many other types of funding available. Peer-to-peer lenders and venture capitalists are keen to lend as they can see better rates of return than from traditional investments.”