Personal insolvencies fall to lowest level in more than a year

30 April 2020, 12:34

Pound coins and banknotes
People in debt figures. Picture: PA

The Insolvency Service warned that there may have been some impact on its figures from courts being unable to process cases at the end of March.

The number of people going financially insolvent across England and Wales fell to the lowest level in more than a year in the first quarter of 2020.

Industry experts commenting on the figures predicted that insolvency numbers could drift down further in the next few months, before spiking towards the end of 2020.

Many people were already just one change in circumstances away from being unable to cope with their debts, even before the coronavirus outbreak, they said.

Some 27,849 personal insolvencies were recorded between January and March – the lowest quarterly figure since 24,763 cases in the third quarter of 2018.

The latest total was down by 11% compared with the first quarter of 2019.

But the Insolvency Service, which released the figures, warned that, while they largely pre-date the impact of coronavirus, there may have been some impact where insolvency practitioners and courts were unable to process cases in the usual way towards the end of March.

Within the latest total, individual voluntary arrangements (IVAs) were the most common type of personal insolvency, accounting for 60% of cases, followed by debt relief orders (DROs), which made up 25%, and bankruptcies, which accounted for 15% of cases.

  • Personal insolvencies, 27,849
  • Company insolvencies, 3,883

IVAs are agreements whereby payments are shared out between creditors, and DROs are used by people who have a low income, low assets and less than £20,000 of debt.

Bankruptcies tend to be seen as a last resort. People can apply to make themselves bankrupt if they cannot pay their debts, or, if they owe someone more than £5,000, then the creditor can apply to the court to make the person who owes money bankrupt.

The Insolvency Service said the fall in personal insolvencies in the first quarter was driven by a decrease in IVAs, although this was partially offset by an increase in bankruptcies.

The number of DROs remained broadly unchanged.

The Government and lenders are offering various “stop gap” financial support initiatives to support people and businesses get through the economic impact of coronavirus.

Alec Pillmoor, a personal insolvency partner at audit, tax and consulting firm RSM, said personal insolvencies could fall further over the next few months.

He said: “The reasons for this are twofold; firstly there is presently a general forbearance by lenders and other institutions due to the prevailing circumstances and, secondly, anyone that is currently furloughed, or concerned for their future employment would presently have great difficulty in putting forward proposals for an IVA based on their future income.

“Additionally, it must be noted that the majority of bankruptcy petitions are not currently being heard by the court.”

Looking further ahead, he expected to see an increase in personal insolvency numbers towards the end of 2020, lasting into the first quarter of 2021.

Mr Pillmoor said: “We would expect two spikes, firstly as the lockdown is eased and some of the sole trader and partnerships find that their business models are no longer viable and they will unfortunately fail; and later when businesses have managed to retain their markets, some will inevitably over-trade to compensate for recent losses and have insufficient resources to pay for this level of trading.”

Duncan Swift, past president of insolvency and restructuring trade body R3, said the organisation’s research in January found a fifth (21%) of Britons had no savings.

He said: “Many people are just one change in circumstances away from being unable to keep on top of their debts.

“The current crisis is playing havoc with the ability of many to use their normal financial coping strategies.

“For example, people who look for marked-down food or cheaper brands in supermarkets may find these are unavailable, while advice to shop as infrequently as possible means they cannot rely on finding end-of-day bargains, if indeed they are able to leave their houses at all.

“It is vital to emphasise that people who are finding it tough to cope at the moment do not need to do so alone. There are many sources of advice and support available, and reaching out for help as soon as possible can only be a positive move.

“Just make sure that anyone offering advice is qualified and trustworthy as, sadly, scammers tend to thrive in difficult times such as these.”

Company insolvencies also decreased in the first quarter of 2020, when compared with the previous three months and the first quarter of 2019.

In the first three months of 2020 there were 3,883 company insolvencies.

This was down by 8.5% on the fourth quarter of 2019 and a 8.5% decrease on the same quarter in 2019.

Creditors’ voluntary liquidations, where company shareholders can pass a resolution that the company should be wound up voluntarily, were the most common type of company insolvency in the latest figures, accounting for more than two-thirds (70%) of cases.

This was followed by compulsory liquidations (18%), which happen when a winding-up order is obtained from the court by a creditor, shareholder or director.

The remaining 12% was made up of various other types of company insolvency.

Mr Swift said the “unprecedented” Government support available for businesses affected by coronavirus was welcome.

“But it is clear that it will not have been enough to keep every company afloat, especially those which had entered the crisis period with existing debt problems,” he added.

By Press Association

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