Insolvency Figures For Second Quarter Of 2017

Published 26 June 2017

Summary

The latest Insolvency Service figures for corporate and personal insolvencies for the second quarter of 2017 for England & Wales were issued recently.  Although the total number of company insolvencies increased in Q2 2017, this was primarily caused by 1,131 connected personal service companies (“PSCs”) entering into liquidation on the same day following changes to the claimable expenses rules.  If these liquidations are ignored, the estimated underlying company insolvencies fell to the lowest quarterly level since comparable records began in 2000.

These figures have come as a surprise given that insolvency practitioners have generally been reporting a tougher time for businesses in 2017.  One explanation may be the change in the Insolvency Rules that occurred in April 2017 which may have resulted in some insolvency processes being delayed.  Also, given the reports of higher personal borrowings, businesses may be benefitting from this short term debt fuelled spending spree.

Turning to personal insolvencies, total individual insolvencies decreased in Q2 2017, mainly as a result of a 15.5% drop in individual voluntary arrangements (“IVAs”) compared with the previous quarter.  It should be noted, however, that Q1 2017, was the largest quarterly number of IVAs recorded since records began.  Compared with the same quarter last year total individual insolvencies remained almost static.

The Bank of England have expressed concern at the rising level of consumer debt.  Cheap credit remains available and personal contract purchase plans which has been fuelling the buoyant car market are all helping to create a personal debt bubble.    

  No. in quarter % change on previous quarter % change on same period last year
Corporate - Total Companies 4,547 12.60 27.80
Company Liquidations 4,126 14.50 32.90
Receiverships 0 -100.00 0.00
Administrations 337 -5.10 -1.70
Company Voluntary Arrangements 84 6.30 -22.90
Personal - Total Individuals 22,772 -9.70 -0.10
Bankruptcies 3,772 -2.50 4.60
Individual Voluntary Arrangements 12,854 -15.60 3.30
Debt Relief Orders 6,146 0.40 -8.80

Source: Insolvency Service and Companies House

Corporate

Key Findings for Q2 2017

Although company liquidations show a significant increase for the quarter, if the effects of the liquidation of 1,131 PSCs are ignored, the underlying liquidation rates are down compared with both the last quarter and the same period last year.  This is the second quarter in the last three where liquidation numbers have been distorted by connected PSCs being wound up.  In Q4 2016, 1,796 companies were similarly wound up.  This second round of liquidations may have been triggered after HMRC’s fraud and investigation service began asking for details about the number of connected PSCs taxation returns being submitted. 

Both Administrations and company voluntary arrangements (“CVAs”) are down compared with last year although the latter has shown a 6.3% increase compared with the last quarter but in actual numbers this only represents an increase of five companies.  The number of CVAs continues to remain very low compared to other forms of corporate insolvencies and compared to IVAs. 

If the PCPs are ignored, Construction as a sector continues to produce the highest number of new company insolvencies with Wholesale& Retail Trade (including the repair of vehicles) being the second highest.

* There were one-off events of 1,796 connected personal service companies entering creditors’ voluntary liquidation in Q4 2016 and 1,131 in Q2 2017, following changes to claimable expenses rules.
Source: Insolvency Service and Companies House. Excludes CVLs following administration.

Personal

Key Findings for Q2 2017

As the table above shows, personal insolvencies fell by 9.7% compared to the previous quarter but this was as a result in the significant drop in IVAs compared with the record previous quarter.  Year on year personal insolvencies have remained static which is perhaps surprising given the recent press coverage about the increase in levels of personal debt being taken on by individuals as wages are being squeezed and levels of personal savings falling.

Of the 3,772 bankruptcy orders made in Q2 2017, over 75% (2,839) were made on the application of the debtor which is over 10% more than the same period last year.  This increase could well be the result of the removal of the court’s involvement where debtors can now make a bankruptcy application on line via a central UK Government website and where the cost of the application can be made by installments.

Discussed elsewhere in this Newsletter is the possible creation of a Single Financial Guidance Body creating a one stop shop for free debt advice which may help individuals avoid formal insolvency proceedings.  The Bill was debated in the House of Lords in early July and it is expected that part of its duties will be improving the financial education of individuals in the future.  In addition it had been hoped that the would be some mention in the Queen’s speech of the creation of a 28 day breathing space to give people the chance to seek advice and deal with their debts effectively.  However, given that over 75% of bankruptcies are debtor lead, we are not sure how much difference this will actually make.

Source: Insolvency Service