Q2 2018 insolvency statistics – comments

Commenting on the Q2 2018 (April-June) England & Wales insolvency statistics (published this morning by the Insolvency Service), Stuart Frith, president of insolvency and restructuring trade body R3, says:

Corporate insolvencies

  • Corporate insolvencies fell by 12% in Q2 compared to Q1 2018 and rose by 12% compared to Q2 2017.

“While the dip in corporate insolvency numbers in the last quarter may surprise some, it is just one quarter. Insolvency numbers have bounced around from quarter to quarter in recent years, and the underlying trend remains slightly upwards. Insolvencies in the last quarter were much higher than they were this time last year.

“The fall from Q1 could be explained by the fact that corporate insolvencies often receive a bump in January to March as company directors take stock of their situation ahead of the end of the financial year.

“While there has been a lot of attention on ‘big name’ insolvencies since the start of the year, particularly on the High Street, it’s important to remember that one business’s struggles can have a serious knock-on effect on its suppliers and customers. Recent R3 research found that over a quarter (26%) of UK companies have suffered a hit to their finances following the insolvency of a customer, supplier or debtor in the last six months.

“R3’s members are reporting, for example, that they are receiving enquiries for advice and support from companies in industry sectors linked to retailers, such as recruitment agencies and shop fitters.

“Company Voluntary Arrangements (CVAs) have been getting plenty of headlines recently, and while numbers are slightly elevated compared to normal, they are down from last quarter and they still account for just 2% of all insolvencies. When looking at CVAs – and particularly when thinking about the knock-on effect of insolvencies on other businesses – it’s important to remember that CVAs often provide a better outcome for creditors, employees and other stakeholders than the alternatives of administration or liquidation, as shown by recent R3 research.

“All businesses are facing a range of pressures. Sluggish economic growth isn’t helping, while staff costs for many are greater than a year ago, following April’s increases in the National Living and Minimum Wages, with pensions auto-enrolment expenses also part of the picture. Business rates rises continue to be cited as a reason for business struggles, too.

“The sooner any businesses facing problems seeks advice from a qualified and professional adviser, the more options they will have to turn themselves around.”

Personal insolvencies

  • Personal insolvencies rose 4% from Q1 to Q2 2018, and are 27% higher than in the same quarter in 2017 (seasonally adjusted figures).

“Personal insolvency numbers have been on the rise since the second half of 2015, so while the latest quarter-on-quarter rise isn’t too surprising, it does underline that, for many people out there, financial stability is out of reach. The comparison with last year’s Q2 figures is especially stark.

“There are plenty of reasons why people might be feeling the pinch. Wage growth is barely higher than inflation, after a long period of real wage falls. Although unemployment is low, there are more people earning variable amounts in the gig economy, which can make budgeting difficult. Meanwhile, outstanding consumer credit volumes have been growing, as has the average amount of debt per head.

“The household saving ratio was lower in the first quarter of 2018, according to the latest statistics, and has been falling for the last couple of years. Across 2017 as a whole, the average household spent £900 more than it received in income – people’s safety nets are getting thinner.

“It’s important to remember that these statistics don’t tell the full story of personal insolvency as they don’t include the number of people in non-statutory debt management plans.

“Debt management plans are an agreement between an individual and their creditors to repay debt or a portion of debt over a set period of time, but, unlike statutory insolvency procedures, the agreements don’t automatically bind all creditors, there isn’t the automatic debt write-off you would get in bankruptcy or a Debt Relief Order, and the procedure isn’t necessarily overseen by a licensed insolvency practitioner.

“While debt management plans can be the best way of dealing with some people’s debts, little is known about the scale of their use. Although providers of these debt solutions are monitored by the FCA, there is still no reliable way of knowing how many people are in a debt management plan – and what the true extent of personal insolvency is in England and Wales.

“Although not yet near the highs seen a decade ago, the rise in personal insolvency numbers should make the Government sit up and take notice – the Q2 number is the highest it’s been for over six years. A long-mooted ‘breathing space’ is currently in the works, which would provide people in serious debt with a period where they are protected from creditor action, and where they can seek unpressured advice from an accredited source about their situation and possible solutions.

“This breathing space can’t come soon enough and there is widespread support for its introduction, so it’s unfortunate that the Government has decided to wait for the views of its new Single Financial Guidance Body before moving ahead. The new body is still in the process of being set up and won’t be properly up and running for some time yet.

“Anyone worried about their financial situation should seek guidance on ways forward from a reputable professional. There is help out there, and tackling problems rather than letting them spiral can be hard but ultimately well worth it.”