Insolvencies on the rise

November 8th, 2008

In further evidence of the worsening effect of the credit crunch on ordinary people there has been a sharp rise in the number of people and companies being declared insolvent in
England and
Wales.

Individual insolvencies went up by 8.8% in the third quarter of the year to reach 27,087. Corporate liquidations also went up by 10.5% in the same period, to 4,001.
The increases have been widely predicted because of this year’s sudden economic downturn and the consequent rise in unemployment. The rising trend started this year as the economy stated to slowdown under the impact of the credit crunch.

The number of receiverships, administrations and company voluntary arrangements, which are normally an attempt to rescue an insolvent business rather than shut it down, rose to 1,444. That was 65% higher than a year ago, the government’s Insolvency Service said.

The increase over the year is fairly evenly spread among the different types of procedure. But there is a definite trend towards procedures instigated by directors as they try to deal with their problems themselves.

Among the individuals going insolvent, there were 17,341 bankruptcies and 9,746 individual voluntary arrangements (IVAs) in the last quarter – 4.6% more than there were twelve months ago.

Individual insolvencies had in fact fallen in the second quarter of this year, but are now rising again. For bankruptcy orders there has been a pronounced shift towards debtor’s petition bankruptcies [people declaring themselves bankrupt] and away from creditor’s petitions in recent years. This is possibly due to the cut in the bankruptcy term to 12 months, and the general downturn in the property market which has undermined the only asset some people might have had.

A leading economic consultancy predicted that bankruptcies would continue to rise. “With the full effects of the credit crunch and rising unemployment yet to be felt, bankruptcies are set to soar over the coming two or three years. We expect the number of personal insolvencies to rise from around 110,000 this year to around 140,000 in 2009 and even further thereafter.”

There is little good spin that can be put on this news since it is a clear sign of the problems facing the economy. With both unemployment and bankruptcies continuing to rise there seems to be little hope that the UK is going to remain unscathed by the global economic storm.

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