Company and personal insolvencies sink to pre-recession lows

CORPORATE and personal insolvencies in England and Wales fell in the first quarter of the year reaching their lowest levels since before the financial crisis, official figures have shown.

Total company insolvencies hit their lowest level since the end of 2007, while personal insolvencies have fallen to their lowest level in a decade, but practitioners believe insolvency levels could rise over the next two years if interest rates start to rise.

A total of 4,052 companies were declared insolvent in the three months to March, down 1.3% on the final quarter of 2014 and 11.3% lower than the same period last year, the Insolvency Service said. Fewer companies (2,481) entered into creditor’s voluntary liquidation during the period, while the number of administrations (432) was 16.9% down on the same period in 2014 but experienced a 9.2% spike compared to the end of 2014.

Graham Bushby, Baker Tilly’s national head of restructuring and recovery said the numbers mask the true state of corporate financial health in the England and Wales. 

“We have seen a trend for the banks to sell off their non-core bad debt books to private equity groups. As these groups work through those debt books, they are prioritising those firms that they can realise assets from first. However, as they start to focus on the more distressed companies in the portfolios, they may then be left with little choice but to enter them into some kind of insolvency procedure,” Busby said.

Fatally weakend companies ‘exist’

Brian Johnson, insolvency partner at HW Fisher, raised concerns an army of so-called ‘zombie’ companies – which are essentially dead but continue to survive in suspended animation thanks to low interest rates and bank forbearance – will never recover.

“With deflation and a further period of ultra-low interest rates on the cards, many of Britain’s weakest companies will limp on for some time yet. But the fall in corporate insolvencies shows only that fewer companies have gone to the wall – and tells us little about how many more fatally weakened firms are lurching towards it,” he said.

There were a total of 20,826 individual insolvencies in the first quarter, 8.7% lower than the end of 2014 and a fall of 17.6% compared to the first quarter of 2014. The number of bankruptcy orders, which have been decreasing since 2009, fell to 4,209, 22.5% down on the same period last year.

“Perhaps this is the first real sign that we are working our way through the problems of the credit crunch. Because of this renewed confidence people and creditors have in the country’s financial health, new lending is now starting to rise, so although it is looking likely that the 2015 will see the lowest level of personal insolvencies in ten years, we could start to see numbers creeping up in the coming years,” said Bushby.

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