BusinessBusiness RecoveryAdministrations ‘flat-line’ as personal insolvencies hit low

Administrations ‘flat-line’ as personal insolvencies hit low

Business environment for insolvency practitioners worsens with fewer company and personal insolvencies between April and June, official figures show

Administrations ‘flat-line’ as personal insolvencies hit low

THE BUSINESS ENVIRONMENT for insolvency practitioners has deteriorated further with the total number of company and personal insolvencies in England and Wales hitting their lowest levels since before the financial crisis.

According to official figures released today by the Insolvency Service, total company insolvencies in the second quarter of the year fell 7.5% on the same period in 2014 and were 2.9% down on the first three months of this year.

Data compiled by Accountancy Age bears this out. Fifiteen of the 31 Top 50+50 firms to publish insolvency fees reported a decline – the same number as in 2014 – and raked in £567m in fees.

The environment for personal insolvencies worsened with less people becoming insolvent than any point in the last decade. Individual insolvencies were down by almost a third compared to 2014 and have slumped by 9.1% in the past three months.

Compulsory liquidations – down nearly a quarter on the same time last year – were the main driver behind the fall in total company insolvencies.

Brian Johnson, insolvency partner at HW Fisher & Company, said the dramatic fall in compulsory liquidations was due in part to a rule change “which will make it harder to wind up a business through compulsory liquidation”.

“The army of ‘zombie’ companies – which are essentially dead but continue to survive in suspended animation thanks to low interest rates and bank forbearance – is unlikely to ever return to rude health,” he added. “These inefficient companies are likely to limp on for some time yet, but will be easy prey when interest rates rise.”

Restructuring specialists FRP Advisory have predicted that administrations for 2015 will reach a ten year low – the lowest level since the Enterprise Act 2003 came into force – aimed at fostering a turnaround culture in business insolvencies – and a fall of between 5% and 7% on 2014.

Bankruptcy orders, which have been decreasing since 2009, fell 27.9% on the second quarter of 2014, and were 6.3% lower than in the first three months of this year. The introduction of debt relief orders (DROs) in 2009 is likely to have affected the number of bankruptcies.

Johnson said: “For now, credit is cheap and the banks continue to cut substantial slack to those who fall behind on their debt repayments. But with the hawks seemingly ruling the roost on the Bank of England’s Monetary Policy Committee, the question of interest rate rises is not just ‘when’, but ‘how fast?'”

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