Consumer debt causes rise in insolvencies

Individual insolvencies have risen over the last quarter when compared with
the same period a year ago, as the mounting consumer debt crisis begins to take
its toll.

The total number of individual insolvencies has increased by 36.8% on the
same period as last year, to just over 15,000. Bankruptcies have risen by 27.5%
and individual voluntary arrangements (IVAs), an alternative to bankruptcy, have
risen by 69.6% when compared with the figures for the same period last year.

‘Figures for individual insolvency have risen, with the largest increase
being among consumers, and this seems to be a direct consequence of the
expansion in consumer credit,’ said Desmond Flynn, Insolvency Service, Inspector
General and Agency Chief Executive.

Company insolvencies rose by 12.4% compared with the same period last year,
to 3,342. Compulsory liquidations have risen by 11.6% and creditors voluntary
liquidations, by 2.8%.

Administrations have continued to increase, with a 45.9% rise on the same
period as last year. The number of companies entering administration has risen
for the seventh successive quarter.

‘The administration process continues to be used to good effect. The rescue
mechanism can provide a viable alternative to liquidation and gives creditors a
better rate of return.’

R3, the Association of Business Recovery Professionals, said its members
continue to deal with a huge increase in calls from people who can borrow no

R3 President Ron Robinson said: ‘Experience tells us that when consumers cut
spending, the retail and leisure industry is often the first to feel the
pressure from that.

‘Added to that, the high cost of property in recent years has led to higher
retail rental costs, with the leaseholders’ ability to pay often dependent on a
certain level of trade.

‘The slowing economic conditions can be expected to bring fewer customers
through the door and we are concerned about the possible impact on the cash-flow
of those businesses.’

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