7th March 2019
Personal insolvency at its highest for 8 years and company insolvencies also on the rise
The personal insolvency statistics for England and Wales for the 2018 quarter October to December have been published by The Insolvency Service – revealing that figures are at an all-time high since 2011 with the total insolvencies figure increasing to 115,229. Company insolvencies were also acknowledged at their highest since 2014 with the Construction industry reported as the most vulnerable.
Why the increase?
Personal insolvency was driven up due to Individual Voluntary Arrangements (IVAs) climbing to their highest recorded annual total. IVAs are often used to deal with consumer debts, but according to recent figures and studies of “consumer knowledge”, they may not be the right financial solution.
It may be a decision being taken lightly due to household income factors says Louise Brittain, Partner and Head of Contentious Insolvency at Wilkins Kennedy who has noted that “The High Street is suffering because the average UK household disposable income is being reduced by rising costs elsewhere, such as rising commute costs.” In addition, Stuart Frith, President of insolvency and restructuring trade body R3 who recently conducted a piece of research with ComRes, found that “one in five British adults (20%) would find it somewhat difficult, very difficult or impossible to immediately pay an unexpected bill for an amount as little as £20, without assistance from an external source.”
The underlying cause for the rise in Company insolvencies is different and is being explained as being due to a ‘bulk insolvency event’ related to the new IR35. IR35 being a tax reform that was implemented to prevent the avoidance of Tax and National Insurance Contributions through the use of Personal Service Companies (PCS). The National Media picked up on this highlighted a number of high profile news readers etc who allegedly used such mechanism’s to manage their tax liabilities. Some owner / directors of PSCs who have liquidated their companies are putting the blame on these changes which they say are making their company’s activities unviable. So is this a “blip” as opposed to a reflection of economic conditions?
Being unaware of the after-effects of Personal Insolvency
What many people don’t realise is the long-term effects of personal insolvencies which appear to be a quick fix to their debt problems. Entering into an IVA impacts on their personal records such as showing on credit reports for six years which would then potentially affect being accepted for personal finance and property agreements, as well as services such as utilities.
Recent research conducted by TDX Group revealed that:
The potential after-effects of Corporate Insolvency
Excluding the bulk insolvency event, the highest number of new company insolvencies with 2,954 recorded, was in the construction sector, and manufacturing also featuring highly on the list. The major after-effect is disgruntled suppliers and disheartened employees with whom companies may have built up a strong relationship over many years. This could result in the supply chain distrusting company directors and not being confident in partnering with them again or potential highly skilled employees not wanting to work for these companies again, should the company return to market under a different guise.
If you have any further queries on this topic or if you wish to discuss your current business finances with a supportive funder, get in touch with our team. We work with brokers to ensure minimal risk to their client’s business and navigate the best possible outcomes, keeping you notified throughout the process. Don’t hesitate if debt is affecting your business, please contact our expert team on 0161 832 8484.
Why the increase?
Personal insolvency was driven up due to Individual Voluntary Arrangements (IVAs) climbing to their highest recorded annual total. IVAs are often used to deal with consumer debts, but according to recent figures and studies of “consumer knowledge”, they may not be the right financial solution.
It may be a decision being taken lightly due to household income factors says Louise Brittain, Partner and Head of Contentious Insolvency at Wilkins Kennedy who has noted that “The High Street is suffering because the average UK household disposable income is being reduced by rising costs elsewhere, such as rising commute costs.” In addition, Stuart Frith, President of insolvency and restructuring trade body R3 who recently conducted a piece of research with ComRes, found that “one in five British adults (20%) would find it somewhat difficult, very difficult or impossible to immediately pay an unexpected bill for an amount as little as £20, without assistance from an external source.”
The underlying cause for the rise in Company insolvencies is different and is being explained as being due to a ‘bulk insolvency event’ related to the new IR35. IR35 being a tax reform that was implemented to prevent the avoidance of Tax and National Insurance Contributions through the use of Personal Service Companies (PCS). The National Media picked up on this highlighted a number of high profile news readers etc who allegedly used such mechanism’s to manage their tax liabilities. Some owner / directors of PSCs who have liquidated their companies are putting the blame on these changes which they say are making their company’s activities unviable. So is this a “blip” as opposed to a reflection of economic conditions?
Being unaware of the after-effects of Personal Insolvency
What many people don’t realise is the long-term effects of personal insolvencies which appear to be a quick fix to their debt problems. Entering into an IVA impacts on their personal records such as showing on credit reports for six years which would then potentially affect being accepted for personal finance and property agreements, as well as services such as utilities.
Recent research conducted by TDX Group revealed that:
- 3 in 10 of the general British public aren’t aware that entering personal insolvency could affect their access to rental accommodation
- about 1 in 5 Britons don’t think it will influence their ability to access a mortgage
- over 26% of Brits don’t know it can affect their bank account eligibility
- 3 in 5 believe there would be no impact on accessing utility services, e.g. gas, electricity or broadband
The potential after-effects of Corporate Insolvency
Excluding the bulk insolvency event, the highest number of new company insolvencies with 2,954 recorded, was in the construction sector, and manufacturing also featuring highly on the list. The major after-effect is disgruntled suppliers and disheartened employees with whom companies may have built up a strong relationship over many years. This could result in the supply chain distrusting company directors and not being confident in partnering with them again or potential highly skilled employees not wanting to work for these companies again, should the company return to market under a different guise.
If you have any further queries on this topic or if you wish to discuss your current business finances with a supportive funder, get in touch with our team. We work with brokers to ensure minimal risk to their client’s business and navigate the best possible outcomes, keeping you notified throughout the process. Don’t hesitate if debt is affecting your business, please contact our expert team on 0161 832 8484.