Insolvency Solicitors Ipswich – Latest figures, light at the end of the tunnel?

‘Statistics released in early May by The Insolvency Service show a continuing decline in the numbers of corporate and personal insolvencies in England and Wales during the first quarter of 2013.

Insolvent liquidations (compulsory and voluntary) fell to 3,619 a drop of over 15% from 4,297 during the first quarter of 2012 and of over 28% from their peak in recent times of 5033 during the second quarter of 2009.  Other corporate insolvencies (Administrations, Receiverships and Company Voluntary Arrangements (“CVAs”)) fell to 935 in the first quarter of 2013 a fall of over 27% from 1,290 during the first quarter of 2012 and of over 47% from their peak (ignoring exceptions) in recent times of 1783 during the first quarter of 2009.

With reference to personal insolvencies (Bankruptcy Orders, Debt Relief Orders and Individual Voluntary Arrangements (“IVAs”)) these fell to 25,006 a drop of almost 13% from 28,723 during the first quarter of 2012 and around 30% from their peak in recent times of 35,682 during the first quarter of 2010.

This initially appears positive for UK Plc, however, it is likely that the figures simply mask the underlying financial problems faced by struggling businesses and individuals.

From a corporate insolvency perspective, in reality many such businesses (often referred to as “zombies”) manage to stay afloat by only servicing interest payments.  Some commentators consider that Banks are understandably taking a more risk averse stance both in relation to additional lending and in assessing (and where appropriate reducing) their exposure to current facilities.  There has also been an increase in activity in the asset based finance sector as businesses look to alternative sources of funding such as invoice discounting, factoring and mortgaging of, for example, specific machinery to improve cash-flow and fund continued trading.

From a personal insolvency perspective, whilst there have been high profile insolvencies (for example HMV, Blockbuster and Comet), the fact that many companies have managed to stay afloat, means that employment prospects generally have not yet felt the full force of the downturn.  As a result, in many cases, personal finances have not yet been impacted as severely as may otherwise have been the case.

There is therefore continuing concern amongst commentators as to where that will leave those businesses and individuals when interest rates eventually start to rise, asset values begin to recover and creditors (including HMRC) begin to take more aggressive action.   It appears likely that there will be limited room for manoeuvre for those who have already exhausted their asset base simply as a means of staying afloat throughout this lengthy period of flat lining growth.

On a positive note, if some of the “zombies” fall away, either now or subsequently, whilst distressing for those involved, that may, of itself, provide opportunities for growth in existing businesses and/or an opening for a new business to enter the market without the potentially debilitating shackles of historic debt…’

John Bradshaw is an Insolvency & Business Recovery solicitor at Barker Gotelee, solicitors in Ipswich

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