By Marcus Leach
Latest figures from the Insolvency Service have revealed that the number of personal bankruptcies in England and Wales has fallen slightly in the third quarter of 2011.
Personal insolvencies dropped by 1% from the second quarter to 30,219, while in the same period company insolvencies increased by 2% to 1,253.
Although the number of firms entering an insolvency procedure is now 10% up on a year ago, personal insolvencies are down by 11%.
In the past year the number of bankruptcies has been falling and is now down 31% on a year ago, members of the UK200Group of independent quality assured accountancy and lawyer firms have pointed to the rise in IVAs and Debt Relief Orders for the decrease.
Lawrence King, Business Recovery and Insolvency Manager at UK200Group member firm Critchleys Chartered Accountants, points to a more flexible approach from creditors.
“The main voting group in consumer credit IVAs are the high street banks and credit card companies. Over the course of the last year they have collectively adopted a more flexible approach upon their receipt of IVA proposals, to the extent that they are now prepared to accept a lesser return than previously had been the case," he said.
“The increased use of protocol compliant IVAs has no doubt facilitated this process, whereby the institutions are able to handle numerous similarly drafted IVAs, rather than a disparate group of IVAs without any apparent similarity.
“IVA approvals have increased quarter on quarter this calendar year.”
Lawrence argues that the issuing of bankruptcy petitions by creditors has slowed down as compared to the level people may have anticipated.
The number of Debt Relief Orders has also increased, owing in part to the Government removing pension funds from the maximum allowable asset criteria.
“It is argued that the main generators of creditor’s petitions (banks and HM Revenue & Customs) are adopting a slower approach to the issuance of bankruptcy petitions which has led to a decrease in the number of bankruptcies,” he said.
“In any event some c85% of bankruptcy petitions are the debtors own rather than creditors and we have seen an increase in the number of Debt Relief Orders (“DRO”) quarter on quarter this year, as the Government has removed pension funds from the allowable assets of £300 in a DRO.
“Prior to this, many debtors were prohibited from entering the DRO process if they had contributed to a personal pension scheme.”
Some experts say that company insolvencies are expected to rise further, with Christmas spending unlikely to come to the rescue of many beleaguered companies.
Lawrence says that whilst banks are unlikely to withdraw funding before Christmas, poor sales could see them reconsider their positions.
“In the run up to Christmas we shall most likely see a decrease in corporate insolvency with the banks unwilling to “pull the plug” prior to the Christmas spending period and the January sales," he said.
“However the banks will no doubt consider the Christmas sales figures when deciding whether to continue to support the high street.
“The next rent quarter day falls during the Christmas period and with the decision in Re: Goldacre it is highly likely that directors and Insolvency Practitioners alike would hold off commencing insolvency procedures until we are into the new quarter cycle so as to make the next quarter’s rent an unsecured claim rather than an expense of the insolvency procedure.”
A change in interest rates could also see corporate insolvencies rocket, he warned.
“Whether or not the Bank of England alters rates in the New Year will clearly impact markedly on the rate of corporate insolvencies with many borrowers at present merely discharging interest payments rather than chipping away at the capital element of their borrowings,” he added.
“Whether all borrowers could sustain even a negligible rise in rates is questionable.”
Join us on