Rising spending and costs sees almost 300 personal
insolvencies per day - IVAS fast catching up bankruptcies as
preferred method of sorting debt
2 February 2007
- PERSONAL INSOLVENCIES RISE BY ALMOST 60% FOR THE YEAR: 300 PER
DAY
- HOUSE REPOSSESSIONS HIT 17,000 FOR 2006, INCREASE OF 65% IN ONE
YEAR
- CORPORATE INSOLVENCIES STEADY AT 13,137 BUT ADMINISTRATIONS
INCREASE
The number of UK personal insolvencies continues to increase
with 29,804 individuals entering into bankruptcy or an IVA
(Individual Voluntary Arrangement) during the final quarter of
2006. The figures issued by the Insolvency Service and analysed by
Grant Thornton's Recovery & Reorganisation practice represent
an increase of 7.1% on the previous quarter, reaching a total of
107,288 for 2006, up almost 60% from the previous year's figure of
67,584. The figures also show IVAs fast catching up bankruptcies to
become the insolvency procedure of choice for resolving serious
debt issues with 12,741 IVAs for Q4 compared to bankruptcies
numbering 17,063. For the year the total number of IVAs has more
than doubled, from 20,293 in 2005 to 44,331 in 2006. This compares
to bankruptcies rising by 33%.
Mike Gerrard, Grant Thornton's Head of Personal Insolvency,
said, "Rising personal insolvencies are, in the most part, fuelled
by consumers who borrow to spend, struggle to repay what they've
borrowed and then quickly find themselves caught out in a spiral of
debt they can't escape from. The problem is at such a serious level
that almost 300 people are becoming insolvent each day."
"The problem has been heightened by increases in the cost of
living with rising utility bills, council tax and interest rates
biting where it hurts. However, with the Bank of England reporting
that lending to individuals in 2006 increased by over 10% to £142.6
billion, the problem is clearly a long way from being resolved", he
continued.
Commenting on the rapid increase in IVAs, Grant Thornton's Head
of IVAs, Mark Allen, cites the advantages of becoming debt free
within a set amount of time, typically five years, and the absence
of a bankruptcy's more restrictive terms as reasons for their
attractiveness. He also added that the return to creditors in IVAs
offer a clear advantage in comparison to a bankruptcy."
"Over the past few days, some UK listed IVA providers have
issued profit warnings through market trading statements. While
these may reflect issues inherent to those businesses, they
certainly don't reflect what is happening to in the market. IVAs
are not about to dry up nor reduce in numbers for the foreseeable
future as the UK personal debt problem is far from resolved."
Allen also points to recent figures from the Council for
Mortgage Lenders that show a 65% rise in repossessions to 17,000 in
2006 as further evidence of the extent of an escalating debt
problem.
"The vast majority of today's repossessions, which typically
represent the last resort in a personal insolvency case, are borne
of the insolvency proceedings of 2005. With the huge insolvency
levels seen last year, repossessions in 2007 are heading in no
other direction but up," he added.
"Most of the time, it needn't ever come down to losing one's
home as IVAs regularly offer the best option by facilitating a
repayment agreement between debtors and creditors while freezing
the debt and safeguarding possession of the house. However, with
insolvencies on the rise we expect repossessions will close in on
20,000 before the end of the year," says Allen.
Corporate insolvencies:
Malcolm Shierson, a corporate recovery partner at Grant Thornton
said: "2006 corporate insolvency levels have been more or less
consistent with the last couple of years and all signs are pointing
to more of the same for 2007 when we believe business insolvencies
will reach around 13,000".
However, said Shierson, administration appointments which tend
to affect larger corporates (as opposed to liquidations) were
subject to an increase. "Q 4's 119% administrations increase on the
previous quarter (57% for the year) is attributable to Grant
Thornton's recent appointment as administrators of 844 companies
created and managed by tax solutions provider Asciom Solutions
Limited and Safe Solutions Accounting Limited - the largest ever
single administration application (by number of separate limited
companies involved) in UK corporate insolvency history. If this is
excluded, there would actually be a quarterly decrease of 6%
(compared to Q3) and a 20% rise on 2005"
Given challenging trading conditions in parts of the economy,
Shierson believes that the lack of more dramatic rises in
insolvency levels are attributable to a stronger restructuring
culture. "It's not that UK businesses are not feeling the pinch,
it's that more and more companies under financial pressure are
being restructured, with actual insolvency only seen as a last
resort."
"In the current environment re-financing options for struggling
businesses are widely available, and in particular we are seeing
more players such as private equity houses and hedge funds viewing
the distressed debt market as an opportunity. In a very liquid
market, cash rich lenders are willing to listen to any good
restructuring plan - these days if a business can be saved it
will".
For 2007 I expect retail businesses, bars and restaurants, food
suppliers facing increased pressure from the major multiples and
component suppliers to motor manufacturers to feature at the sharp
end. Restructuring and in some cases insolvency will find plenty of
scope in each of these sectors," he concluded.