Despite wider falls, debt relief orders rose in Q4 2015
COMPANY insolvencies in 2015 were at their lowest level since 1989, the latest Insolvency Service figures published today, reveal.
The downward trend was primarily driven by a decrease in compulsory liquidations, which fell to the lowest annual total since 1981.
Personal insolvencies followed a similar trajectory, with the total individual insolvencies recording their lowest annual level since 2005. The last quarter of 2015 showed a 10.5% fall on the same period in 2014.
The fall was spurred on by a fall in individual voluntary arrangements, which were at the lowest level since 2008.
The figures echo the same downward trend in Scotland.
However there was an uptick in debt relief orders in Q4 2015, due to a change to the eligibility criteria.
Phillip Sykes, president of R3, the insolvency trade body, said: “It’s welcome that insolvency numbers fell so far from their 2010 peak in 2015.
Continuing low inflation and a growing economy have helped people pay down or service debts. The return of real wage growth has put a big dent in insolvency numbers.”
“Quarterly insolvency numbers have been boosted by October changes to Debt Relief Orders, which have made the insolvency regime more accessible to people in financial trouble. A rise doesn’t only mean more people are becoming insolvent: more people are now able to access the formal insolvency regime.”
But Sykes struck a note of cation about debt management plans stressing that while they can work for some people, but they are not regulated in the same way as formal insolvency procedures, and don’t provide the same level of protection from creditors.
“It’s very important that the FCA starts recording the number of debt management plans in operation. Without knowing how many people are using non-statutory debt relief mechanisms, we have no idea of the true scale of personal insolvency in England & Wales.”
“Overall, personal finances are in a better shape than they have been for a while. R3’s regular survey of 2,000 British adults has found that the proportion of British adults who say they often or sometimes struggle to payday is at a record low of 36%. Two-in-five British adults say they are at least fairly worried about their current level of debt which is down from 2015.”
The fall in corporate insolvencies has partly been driven by the falling price of oil which has helped businesses to bring costs down, but could spell doom for the oil and gas sector, with many undergoing a period of restructuring. Should they be unable to cut costs sufficiently, insolvencies may follow.
“Increasing volatility in the stock markets, driven by concern over China, lower growth in the developing world and geopolitical risk in the Middle East all contribute to a time of uncertainty and lower confidence amongst corporates which may impact growth in the foreseeable future,” said Sykes.
Matthew Chadwick, head of personal insolvency at BDO, warned that despite the seemingly good news in terms of the falling insolvencies, UK household debt as a percentage of net household income, is now 55% – its highest level in four years while real earnings have grown by just 0.7% between January and November 2015.
He predicts that the situation is unlikely to change in the short term with a real possibility that real earning increases could turn negative this year.
“Pressures on disposable incomes appear to be driving up debt levels,” said Chadwick, “with relatively low interest rates and sustained credit lending perhaps papering over financial cracks that may become more apparent in the future.
“Property owners are likely to be feeling more upbeat, the 7.7% increase in average house prices to November may mean people are feeling more inclined to apply for credit.
“The impact of October’s seven-fold increase in the bankruptcy threshold level has yet to be felt, though could prompt a notable fall in insolvencies this coming year as the threshold alteration is dealt with in the courts.”