'Modest' Rise In Business Failures Across Q1 2012

The number of corporate insolvencies in England and Wales remains relatively low despite the ten per cent rise seen over the first three months of 2012, according to an expert at Irwin Mitchell.

New figures from the Insolvency Service revealed that a total of 1,290 firms appointed administrators across the period, which was a minor increase from the figure of 1,173 recorded in the final three months of 2011.

The statistics also revealed that the number of people declared insolvent dropped by one per cent over the period analysed.

Commenting on the figures, Andrew Walker, R3 chair for Yorkshire and partner at Irwin Mitchell, said:  “Today’s modest increase in corporate insolvencies comes shortly after the UK’s official dip into recession. We have seen an increase in liquidations of 0.2 per cent on the previous quarter and 4.3 per cent  on the same period last year.

“This may seem like bad news but the fact is, if economic recovery is going to happen, then some unviable businesses must be allowed to fail to allow others to thrive.
 
“What is still clear, however, is that insolvency numbers are historically low compared to previous recessions and we have not seen the volume of business failures that one would expect.

“R3’s latest Business Distress Index found that 37 per cent of businesses say they have seen a reduction in sales volumes and 36 per cent say they are experiencing decreased profits, both up on the previous quarter. This indicates that corporate insolvencies may well rise.”
 
On the issue of personal insolvencies, he said: “The decrease we have seen today in personal insolvencies seems like good news but unfortunately may not paint an accurate picture of the personal debt landscape - personal insolvency figures are still high compared to their peak in 2004.

“There has been a decrease of 4.7 per cent in individual insolvencies compared to the same period a year ago, and a significant fall in the number of bankruptcies, which are down 27.2 per cent on the year – this may well be because people are going into informal Debt Management Plans (DMPs) instead.

“Worryingly, there are no official figures of how many people are in DMPs but recent R3 research found that there are some 2 million people who say they are in a DMP and there will be many more who are struggling with no help at all.
 
“Furthermore, R3’s latest Personal Debt Snapshot found that 39 per cent of individuals are worried about their current level of debt – this equates to 18 million adults in the UK. However, only 1.4 million people are likely to seek advice in the next six months. Nearly a third (32 per cent) think their financial situation will worsen in the next six months, as people struggle with rising basic living costs.
 
“We know that there are also a number of habitual debtors out there who are paying the interest on their debts but not able to reduce the debts themselves. This is not a sensible way to manage personal finances in the long term and unless they seek help, we can expect personal insolvencies to rise."