Jessica Fino 27 Oct 2017 03:33pm

Personal insolvencies rise thanks to voluntary arrangements

Personal and underlying company bankruptcies in England and Wales have risen in the last quarter

Data from the Office for National Statistics (ONS) revealed that the underlying number of companies entering insolvencies rose by 15% in the last quarter, driven by an increase in creditors’ voluntary liquidations.

It said that 4,152 companies entered insolvency during the third quarter of the year, with 3,087 of them being creditors’ voluntary liquidations (CVL).

However insolvencies actually declined by 12.5%, despite 1,131 connected personal service companies entering CVL in in the second quarter.

Meanwhile, personal bankruptcies rose 10.6% compared with Q2 and 7.7% compared with last year.

Of the 25,479 individual insolvencies, 15,523 were voluntary arrangements (IVA). As a result, IVAs rose 18.3%, reaching the largest quarterly number of IVAs since they were introduced in 1987.

Bankruptcies overall fell by 2.2% on the quarter and by 5.2% on the year, the ONS said.

Alec Pillmoor, a personal insolvency partner at RSM, said the increase in the number of IVAs indicated that many people were taking positive steps to resolve their financial issues.

“However, should the widely predicted increase in interest rates occur next week, this will have a significant effect on those households that are just managing on their income.”

Euler Hermes senior economist Katharina Utermoehl added that the credit insurer expected UK insolvencies to rise by 5% this year and a further 6% in 2018, driven by the slowing consumer spending, cooling investment activity and further depreciation of sterling.

“Looking further ahead, a transition deal between the UK and the EU, at the very least, will prevent a sharper rise in business failures. We forecast the number of UK bankruptcies to surge by 15% in 2019 in a no-deal Brexit scenario, compared to just 3% with a transition agreement in place.”

The increase stemmed from rising inflation, a fall in real wages and the longest period of falling consumer spending since 2013, Jeremy Wilmont, partner and head of restructuring and insolvency at Moore Stephens said.

“With the prospects of interest rises on the horizon, both the Chancellor and the Monetary Policy Committee will need to place close attention to the latest insolvency statistics,” he added.

Wilmont urged businesses to look at their contingency plans as he said the rise in financial stress appeared to be gathering pace.