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R3 comments on the Q2 2013 insolvency statistics

By CreditMan Friday, August 2, 2013

Responding to this morning’s announcement that corporate and personal insolvencies increased in Q2 2013, Phillip Sykes, deputy vice-president of insolvency trade body R3, says:

Corporate insolvencies

"The increase in corporate insolvencies is not wholly surprising. Anecdotal evidence from the profession suggests creditors have taken a tougher stance towards debtors in recent months as the economy begins to improve."

"It's not just the usual suspects, such as HMRC, putting pressure on debtors, but other creditors too. Evidence suggests that winding-up petitions have risen steadily since the start of the year, having previously slumped from their most recent peak in 2009."

"Separately, R3 research has shown that the number of businesses with very serious cash flow problems has climbed over the past twelve months."

"For the past sixty years, insolvencies have increased after a recession during the early stages of the recovery when the stresses of growth and renewed creditor pressure prove too much for struggling businesses to bear. However, the patchy recovery since the 2008-9 recession has helped prevent this post-recession insolvency spike from occurring."

"Now that the economic recovery is stronger, the likelihood of a jump in corporate insolvencies has increased."

"That said, a single quarterly increase does not automatically indicate the start of a new trend. We will have to wait and see what the next few quarters hold."

Key Stats

+ 134,000 businesses were struggling to pay debts when they fell due – a technical definition of insolvency – in May 2013, up from 110,000 in June 2012, and up from 101,000 in February 2013 [source: R3 ‘zombie business update’ with BDRC, June 2013]
+ 137,000 businesses were negotiating payment terms with creditors in May 2013, up from 130,000 in June 2012, and up from 74,000 in February 2013 [source: R3 ‘zombie business update’ with BDRC, June 2013]
+ UK winding-up petitions have increased in Q1 and Q2 of 2013 to 1,593, 39% higher than the 1,150 petitions in Q4 2012 (the quarter with the lowest number of winding-up petitions for at least two decades). This was the first increase in winding-up petitions for two consecutive quarters since 2008 Q4 and 2009 Q1 [source: Bureau van Dijk’s ‘Fame’ database of company’s]

Individual insolvencies

"The increase in individual insolvencies goes against the recent trend."

"R3’s latest Personal Debt Snapshot shows personal debt concerns rising since the start of the year. Although the economy is improving, the cost of living is taking its toll. There are a lot of families and individuals out there that do not have a financial buffer to protect them from any increase in necessary financial outgoings."

"This is, of course, only one increase after a long – and welcome – downward trend in personal insolvencies, so it is too early to say if we are in for a period of increasing personal insolvencies."

"It is noteworthy that although IVA use has increased, bankruptcy has continued to fall."

"We have been concerned for a while that the current rules on personal insolvency often make it difficult for people to use a formal insolvency process appropriate for their situation."

"Frequently, insolvent individuals cannot afford the fees to enter bankruptcy, but they have too much debt or assets to qualify for alternatives like Debt Relief Orders. This leaves the debtor caught in the middle, exposed to their creditors. Action needs to be taken by the Government to reduce the number of people in this situation by looking at payment by instalments for bankruptcy and amending the thresholds for entry into Debt Relief Orders."

"Individual Voluntary Arrangements offer an alternative solution. They do not have the same fee barrier as bankruptcy but they do have to be agreed by creditors, which can be easier said than done."

Key stats [source: R3/ComRes survey of
2,000 people, June 2013]

50% of GB adults are concerned about their current level of debt, up from 42% in February
One fifth (21%) of GB adults say they are ‘very’ or ‘extremely’ worried about their current debts, up from just 12% in February.
42% of GB adults say they struggle to make it to payday, of whom the vast majority (67%) blame the rising cost of living for their financial difficulties.
27% of GB adults – more than 12 million people – say they do not have any savings at the moment, up from 23% in February.
Credit cards (42% of those worried about current debts), mortgage repayments (22%), and overdrafts (20%) are the most common types of debt that worry those with financial concerns.
10% of those worried about current debts said that payday loans were the debt that worried them.

R3 is the trade body for Insolvency Professionals, and represents 97% of the UK’s Insolvency Practitioners.

*Not seasonally adjusted