Corporate insolvencies increase but personal sees 6.1% drop

CORPORATE INSOLVENCIES increased in the second quarter of the year but fell in comparison to the same period a year ago, sending confusing messages to the profession.

Secpnd quarter company liquidations and creditors’ voluntary liquidations increased 10.5% on the first three months of the year, but fell by 2.1% compared to the same period a year ago.

“It’s unusual to see insolvencies rise from Q1 to Q2,” said Mike Jervis, business recovery partner at PwC. “The first quarter has historically been the peak for insolvencies. Drilling down into the numbers, this is being spurred by increases in the retail and property sectors.

“After the shocks of Q1 when household names disappeared, it shows that we are not out of the woods yet- especially on the high street and in the real estate sector.”

Administrations also increased to 622 compared to 557 on the last quarter but were slightly down on the 625 seen in the second quarter of 2012 and have increased quarter on quarter since Q3 2012.

Company Voluntary Arrangements increased on the last quarter to 160 from 142, however, this is a vast improvement on the “unusually high number of CVAs in the second quarter of 2012” with 352.

“We hold our breath to see how recent positive data and renewed CFO confidence actually translates longer term into the business recovery space, clearly this will take time,” said Dan Butters, Deloitte restructuring partner.

“Today’s figures also coincide with reports from CFOs surveyed by Deloitte that credit is currently cheaper and more available than at any time in the past six years – good news for businesses that can expand,” he added.

However, Baker Tilly restructuring and recovery partner Steven Law warned that the trend of rising corporate insolvencies will continue: “There are signs that other creditors [aside from banks], including the taxman, are becoming a little less patient. A greater number of ‘time to pay’ proposals are being rejected by HMRC, and other creditors such as business landlords seem more willing than before to file winding up petitions in the courts.

“As a result, we would expect the increase in formal insolvencies that we’ve seen in the last quarter to continue into the second half of the year.”

HW Fisher & Company’s insolvency practitioner Nick O’Reilly warned the increase could be a sign of things to come given that historically corporate insolvencies rise when a country exits recession.

“It is tempting to see this quarterly increase as a blip. But in the past two economic cycles, insolvency rates peaked two years after the recession ended. If that pattern repeats itself, that would imply a further jump in insolvency next year.”

Meanwhile, person insolvencies fell by 6.1% compared to the same quarter a year ago.

Bankruptcies were down 20% on the same period a year ago to 6,469 from 8,093 in Q2 2012; Debt Relief Orders, simplified bankruptcies for individuals with lower debts and assets, also declined 10.4% to 7,132 compared to a year ago. However, Individual Voluntary Arrangements, where a debt is consolidated and a percentage repaid over a contracted time, increased to 12,116 from 11,346 for the same period in 2012.

Although the stats that less individuals are filing for formal insolvency proceedings looks promising that PJG Recovery partner Melanie Giles claims the figures do not accurately portray what is happening.

“The reality is that many households, as highlighted [recently] by the Money Advice Service, are still struggling to cope. More than half of people surveyed said they were struggling.”

Related reading