Q2 insolvency stats reflect misery of UK economy

Hostile economic conditions have seen more than 33,000 people file for
bankruptcy in the last quarter alongside 5,055 company liquidations and 1,529
other collapses.

The Insolvency Service statistics released today reflected the unforgiving
economic conditions individuals and businesses are struggling to ride out.

There were 33,073 individual insolvencies in England and Wales in the second
quarter of 2009. This was an increase of 27.4% on the same period a year ago.

This included 18,870 bankruptcies, 15.3% up on Q2 2008, 12,225 individual
voluntary arrangements, a 27.4% rise on the same period and 1,978 debt relief
orders.

The debt relief orders were brought in on 6 April this year as an alternative
to a traditional bankruptcy proceeding.

DROs provide debt relief for people living in England and Wales who do not
own their own home, have little surplus income (no more than £50 a month),
assets (other than possibly a car) not exceeding £300, and less than £15,000 of
debt.

DROs do not involve the courts, instead being run by the Insolvency Service
in partnership with skilled debt advisers, called approved intermediaries, but
the take up of the orders has been much lower than expected.

The personal insolvency climate has generated some serious concerns in the
profession.

Mark Sands, director of personal insolvency at Tenon Recovery, said: ‘The
overall record level of personal insolvencies, while at first shocking, hides
the detail which suggests the worst is yet to come. Bankruptcies have fallen
compared to the previous quarter – however, year-on-year bankruptcy figures are
up and I believe this to be a temporary respite before the inexorable rise
continues.

‘IVAs have become more popular as people seek to protect their family home.
DROs are at nothing like the levels expected. These three factors mean that
overall levels will continue to increase throughout 2009, with a record level
of 140,000 or more personal insolvencies expected by the end of the year.

‘At first glance, DROs seemed to be a quick and easy solution to assist with
Britain’s poorest debtors. So much so, I would have expected at least three
times as many DROs in last quarter’s insolvency figures. However, eleventh hour
changes to include a person’s pension in their assets seems to have narrowed the
criteria to such an extent that DROs are now only applicable to a handful of
people.’

Corporate breakdowns showed 5,055 compulsory liquidations and creditors’
voluntary liquidations in total in England and Wales in the second quarter of
2009 (on a seasonally adjusted basis). This was an increase of 2.9% on the
previous quarter and an increase of 39.1% on the same period a year ago.

1,529 other companies collapsed in Q2 2009 (not seasonally adjusted)
comprising 345 receiverships, 1,027 administrations and 157 company voluntary
arrangements.

This was a 22.7% increase on the same period a year ago.

On the corporate side, the figures show a slight increase from the first
quarter of 2009, which suggests collapses may have peaked but the IP community
remains unconvinced.

Richard Fleming, UK head of restructuring at KPMG, said: ‘The second quarter
figures are continuing to hold up. The predicted lull during the July holiday
season just hasn’t materialised, as we’ve seen a swathe of insolvency
appointments being made, across all sectors. We see this trend continuing well
into August and probably for the second half of the year.

‘We’re seeing that lenders are acting with more certainty as they appear to
be taking more decisive action on individual cases. They are beginning to
crystallise their losses quicker, and move on from them in a bid to begin to
balance their books.’

Andrew MacCallum, managing director at restructuring and turnaround firm
Alvarez & Marsal, which is handling the restructuring of Lehman Brothers
Holdings Inc, said: ‘We are merely at the end of the first wave of insolvencies
in this recession. More than five thousand companies may have gone into
administration in the last quarter, but we can expect to see that figure
exceeded in every quarter until at least the end of 2010.

‘Companies that have survived the past year since the collapse of Lehman have
done so by significantly cutting costs and shoring up their finances. However,
many surviving businesses are exhausted managerially and financially, and now
lack the resources to continue, just when we are beginning to see some early
positive signs.’

Liz Bingham, UK head of restructuring at Ernst & Young, warned the rise
in individual insolvencies and the continuing high level of corporate
insolvencies was just ‘the tip of the iceberg’.

‘The figures do not include restructurings or debt management processes in
use outside of formal procedures or those companies who are effectively dead in
the water, but whose debt structures lack triggers to force intervention,’
Bingham said.

‘Moreover, it is unlikely that these figures represent the peak of UK
insolvencies. The rate of economic contraction may have slowed in the second
quarter, but in the last recession the insolvency peak lagged the economic
trough by over a year.’

Further reading:

Deloitte
predicts 33,000 personal insolvencies