Sharp fall in insolvencies ‘a surprise’, says R3

By July 28, 2017Featured, Finance, News
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New figures which show that business insolvencies fell sharply in real terms in the three months to the end of June are at odds with the picture on the ground, according to North West insolvency practitioners.

The Insolvency Service statistics released today show that the underlying business insolvency rate fell to a record low during the second quarter, after rising for three quarters in a row. In real terms, around 3,416 companies in England and Wales became insolvent during the second quarter, 15.4% down on the previous quarter and 4% down on the same period last year. The figures exclude the insolvencies of over 1,000 personal service companies linked to a tax change.

Paul Barber, North West chair of the insolvency and restructuring trade body R3 and a partner at Begbies Traynor, says: “The figures are a real surprise given that our members are reporting seeing an increase in enquiries from businesses in distress.

“It could be that the introduction of new insolvency Rules in April has delayed some insolvency processes and, with rising consumer debt, some businesses may be benefiting from consumer spending.

“However, it’s important not to read too much into one sudden change. Prior to this quarter, insolvencies had been rising more consistently than they have done since the financial crisis and there are still lots of warning signs. Higher inflation, the low pound, the roll-out of the National Living Wage and pension auto-enrolment are all putting pressure on businesses, while the election outcome and Brexit negotiations are creating uncertainty.

“It makes these figures all the more surprising – but perhaps they are a sign of the strange economic times in which we live.”

Personal insolvencies
Personal insolvencies also decreased during the second quarter. There were 22,772 individual insolvencies in England and Wales, a decrease of 9.7% on the previous quarter and 0.1% on the same quarter the previous year.

Paul Barber added: “The fall appears counter-intuitive, given that personal finances are being squeezed, wages are rising more slowly than inflation and the Bank of England has raised concerns about consumer borrowing.

“However there is plenty of cheap credit available and 0% introductory offers on credit cards, which may be keeping insolvencies down. The personal insolvency numbers should also be treated with caution as they don’t tell us the full story, given the number of people in debt management plans which do not show up on the figures.”

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