R3 comments on the insolvency statistics for Q1

May 25, 2010 - PRLog -- Corporate insolvency

Personally I have seen about a 25% increase in the amount of formal insolvency work since the start of the year - small companies with revenues under £15m are the worst affected. Many cases remain in the pipeline and will not show up in today’s official figures.

We would still expect a spike in the number of insolvencies in the five or six quarters following a recession because many businesses that suffered during the recession find it hard to borrow as lending requirements tighten. Many of them will see ‘green shoots’ but will not be able to fund expansion, especially if interest rates increase. And when a recession ends and assets rise in value, creditors are encouraged to move ahead with more aggressive debt collection.

Any future increases in corporate insolvencies are likely to affect others as Insolvency Practitioners estimate that around 27% of corporate insolvencies are triggered by another company''s insolvency - the ‘domino effect’. HMRC’s ’Time to Pay’ arrangements have been extremely successful in keeping businesses alive. However, this facility is likely to be squeezed moving forward. Company Voluntary Arrangement (CVA) numbers are stable and this is clearly a useful rescue tool reflecting flexibility by landlords and other creditors.

Personal insolvency

Today’s increase in personal insolvency is as expected as the debt hangover filters through to official insolvency statistics and unemployment increases. However, there remains something of a ‘debt iceberg’ with many more people in unrecorded Debt Management Plans which are not included in today’s statistics. According to estimates by R3 this could amount to 500,000 people, more than double the number in formal insolvency procedures.

Below them, under the waterline are another 574,000 who are struggling financially but have contacted their creditors informally. More worrying are another group further down comprising of 961,000 individuals who are struggling with debts but have not sought help. This group could find themselves in formal insolvency procedures unless they take swift action.

Steven Law President of R3, the insolvency trade body

R3 is the trade body for Insolvency Professionals, and is made up of 97% of the UK’s Insolvency Practitioners from all over the UK.

http://www.griffinandking.co.uk

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Griffin and King are a leading firm of Insolvency Practitioners within the West Midlands with offices covering Dorset, Hampshire, Shropshire and Mid Wales.