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Insolvency Service Q2: The Responses

Following the release of today’s statistics from The Insolvency Service for the second quarter of 2014, Insolvency News presents a round-up of reactions from leading industry figures.

Source: The Insolvency Service

“Not much has changed”

Philips Sykes, R3 vice-president
“While administrations and voluntary arrangements have remained at a pretty constant level for the past five or so years, liquidations have fallen gradually since the recession. Although there has been the occasional quarterly jump, things have always fallen back again the next quarter.”

“Other than an improving economy, not much has changed to have a big impact on insolvency numbers. Some sectors, like the legal sector have encountered regulatory challenges, which has led to higher insolvency numbers there, but for everyone else the past few years have been the same story: low interests rates and lenient lenders.”

“An interest rise could cause some businesses extra problems, but it would have to be more than a couple of quarters of a percentage point to make any real difference.”

“We do expect an increase in insolvencies”

Clive Lewis, head of Enterprise at ICAEW
“The fact that company insolvencies continue to fall, and are lower than they were a year ago, is a significant step toward a more stable economy. With the number of companies entering voluntary liquidation at the lowest level since 2008, business survival rates have come a long way since the recession. However, we do expect an increase in insolvencies when interest rates rise, particularly if companies have been overtrading because of the rapid growth in the UK economy.

“Our economic forecast tells us that the UK economy is expected to grow by 3.4% this year, twice as fast as the growth seen last year and up from our previous projection of 3.3%. But we are still in a fairly early stage of recovery. Businesses expect most growth over the next year to be domestic sales rather than exports, so this is not a trade-led recovery. In addition, many businesses report that availability of skills is a greater challenge than a year ago. The inability to acquire suitably-skilled staff may act as a cap on growth, holding back economic performance.”

“Enormous amount of stagnation”

Melissa Jackson, director of corporate recovery and insolvency at Carter Backer Winter
“Insolvency practitioners that are still waiting for an avalanche of zombie companies to tip over into insolvency are searching for scotch mist. There is still an enormous amount of stagnation in the economy despite the new shoots of growth an optimism. A rise in interest rates may tip the balance for some struggling companies that are right on the edge, but it won’t change things for the majority. Businesses have got into the habit of surviving.

“An interest rate rise may make a tight situation even tighter, but the majority of businesses will continue to fight on.”

“Serious underlying problems”

Graham Bushby, head of restructuring and recovery at Baker Tilly
“In the past, we have seen an increase in corporate insolvencies as we have emerged from recession, but this isn’t the case this time around. In fact, the number of company liquidations, administrations, company voluntary arrangement and receiverships are all down on the same period last year.

“There are many reasons for this, not least of which is the continued record low interest rates which have enabled many companies to struggle on despite serious underlying problems. Many of these companies – and particularly those who have been placed onto interest only deals with lenders – will have to brace themselves for rate rises over the next few years.

“For some, the gradual and limited rate rises promised by the Bank of England will be just about manageable, for others it will be the final straw.”

“Resurgent levels of business confidence”

Brian Johnson, insolvency partner at HW Fisher
“With company liquidations and administrations both down markedly, these figures show Britain’s resurgent levels of business confidence.

“But there is nothing inevitable about the continued decline in levels of business failure.

“Consumer demand is strong and interest rates remain low – boosting the strong companies and flattering the weak ones.

“The weakest links of all are in a fools’ paradise, which is likely to come to a juddering halt when interest rates rise. Despite the mixed messages coming from Threadneedle Street, this prospect is both inevitable and increasingly imminent.

“More worrying is the attitude of the banks. While they are keen to trumpet their modest increases in lending to SMEs, they are also showing less forbearance to those companies that are struggling with debt repayments.

“After so long with shutters pulled down to new business lending, banks are finally beginning to lend again. But this is the hollowest of victories if it is accompanied by a drive to pull the rug from under existing borrowers.

“An end to forbearance will ensure the banks take one step forward and three steps back. That hardening attitude, coupled with the rise in interest rates – which could come by the end of the year – risks undermining all the progress made in the past year.”

Source: The Insolvency Service

“Signs of a strengthening recovery”

Matthew Chadwick, business restructuring partner at BDO
“Today’s rise in individual voluntary arrangements is typical at our position in the economic cycle and need not be cause for alarm. There are many signs of a strengthening recovery including rising wages, record employment figures and increased retail spend: this, paradoxically, is another one of them.

“Now property prices are rising, creditors are more likely to think about recouping long-standing debts. A continuing rise in the number of personal insolvencies in the next 12-18 months is therefore likely.

“Putting cash into savings has not been attractive with interest rates at rock bottom. But individuals, especially homeowners with unsecured debt, should consider shoring up their finances and replenishing their savings now, if only to avoid sleepless nights later. With the economy looking more healthy, those with bad debts are now more likely to be asked to pay them back.”

“Personal insolvencies fell sharply immediately after the recession but the dip has really bottomed out over the last year or so. Over the past year or two, personal insolvency numbers have pretty much held steady, but things are really beginning to creep up, especially with Individual Voluntary Arrangements.”

“Confident in their financial prospects”

Mark Sands, personal insolvency partner at Baker Tilly
“The official personal insolvency statistics show that there were over 14,500 IVAs in the second quarter of 2014 – the highest quarterly number since the introduction of IVAs in 1987. What’s clear is that borrowers are increasingly looking to resolve problem debts rather than considering the nuclear option of bankruptcy which is down 15.9 per cent compared to the same period last year.

“This is a sign that people are confident enough in their financial prospects to commit to a five year regular payment plan to settle up their debts in full with the balance then written off, and reflects the ongoing positive effect of record low interest rates.

“It is to be hoped that many of those people entering IVAs now will be able to see them through to their successful conclusion, but the prospect of interest rate rises, even if gradual and limited as promised, will have a significant impact on those whose budgets are already tight.

“For someone who has committed to paying £150 a month for five years to settle unsecured debts under an IVA, a two per cent rise on a 25-year 5% repayment mortgage of £150,000 could raise monthly mortgage payments by around £180, effectively wiping out the money needed to meet the IVA obligations. Some borrowers will either have to rein in their spending or face the prospect of bankruptcy.”

“People are really struggling”

Bev Budsworth, managing director at The Debt Advisor
“Today’s figures show that, aside from all the talk of economic recovery, it’s clear that people are really struggling, with a rate of personal insolvency not seen since summer 2012 – a time when we were just emerging from a double-dip recession.

“Many households are under real financial pressure at the moment, which is echoed in today’s figures. The underlying factors to today’s figures shows that it’s still a real mixed bag out there with continually depressed wages not helped by rising inflation. According to the Money Advice Service, nearly nine million adults have too much debt and only escaped today’s figures by just managing to make their financial commitments.

“I believe that there are millions of adults in the UK who are just scraping by; those people who are flying under the radar and are not yet a statistic because they are just about making their debt repayments each month.

“Although the economy is in recovery for some, for hundreds of thousands of people, their finances are on a knife edge, held in check only by a sustained low interest rate. For me, the acid test will be when the Bank of England starts to raise its base rate and people’s mortgage payments follow suit, plunging over a million households in ‘debt peril’, compared to the current 600,000 – according to the Resolution Foundation.”

Source: The Insolvency Service
For the full Insolvency Service infographic click here

Posted on 29th July 2014 by



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