Personal insolvency (up)
“This is the most sustained rise in personal insolvency numbers since the financial crisis.”
“Personal insolvencies are far from their peak, but the rise in numbers is a concern. Although interest rates are at record lows, despite employment levels being high, and despite wages growing faster than inflation, people are still struggling to pay their debts.”
“R3’s latest Personal Debt Snapshot of over 2,000 British adults found 37% of British adults say they are at least fairly worried about their current level of debt. And 39% of British adults say they often or sometimes struggle to payday.”
“Looking forward, a post-referendum interest rate cut might help in future, but it might not be enough to offset the effect any post-referendum recession – if there is one – might have on personal finances.”
“The bigger rises in insolvencies we have seen in the second quarter this year and the third quarter last year may in part be because people are struggling with tax bills, which fall due at the start of the year. There’s a lag between when bills are due and when any consequent insolvency proceedings begin. The arrival of a large tax bill has always been a frequent cause of insolvencies.”
“It’s worth noting that Debt Relief Order numbers remain steady following reforms in October to make them more accessible to those with low debts but low assets. The easier it is for people to enter a debt relief solution appropriate to their needs, the easier it is for them to be financially rehabilitated more effectively.”
“Reforms to improve the accessibility to bankruptcy in April do not seem to have had much effect yet. A major concern for the insolvency profession, which was not entirely addressed by these reforms, is the up-front government and court fees for entering bankruptcy. These fees are prohibitive and stop people from accessing a debt solution appropriate to their needs. Worse, having cut the cost of entering bankruptcy to £655 in April from £705, the government put the cost up to £680 from July with little warning.”
Corporate insolvency (down)
“The cost of borrowing remains incredibly cheap for businesses and the last quarter saw better than expected GDP growth. These factors, combined with the high levels of creditor forbearance we have seen since the financial crisis, mean it’s not a surprise that the trend of falling corporate insolvency numbers has continued.”
“Other factors have helped bring insolvency numbers down, such as the rise of non-statutory restructurings. More companies are looking to repair finances outside of formal insolvency procedures and take action before it’s too late. Again, creditors, particularly banks, have played a role in pushing struggling debtors to seek help from the insolvency and restructuring profession before an insolvency procedure is their only option.”
“There is a possibility that uncertainty about the outcome of the EU referendum could have put some businesses in serious financial difficulty. And although it came at the end of the quarter, the result itself may have caused some businesses immediate problems. However, any ‘Brexit’ effect would be limited to a handful of companies, for now at least. Gloomy confidence indicators published in the last few weeks do not bode well for future insolvency numbers.”