Personal insolvencies continue to fall

The Insolvency Service has published its latest insolvency statistics which show that personal insolvencies continued to decline in England and Wales in June 2020.

There were 1,775 debt relief orders (DROs) and 454 bankruptcies in the three months ending June 2020 there was a monthly average of 8,428 registered individual voluntary arrangements (IVAs).

Bankruptcies were made up of 431 debtor bankruptcies and 23 creditor bankruptcies. There was a 15% reduction in DROs and a 65% reduction in bankruptcies in June 2020, compared with the same month last year.

The reduction in bankruptcies was driven by a 58% fall in debtor bankruptcies and a 91% reduction in creditor bankruptcies. The fall in DROs and debtor bankruptcies corresponds with a reduction in applications for these services, which coincided with the announcement of enhanced Government financial support for individuals and businesses since the emergence of the coronavirus pandemic. The fall in creditor bankruptcies will likely have been a result of reduced HMRC enforcement activity during this period5 and in part, a result of reduced operational running of the courts during this time.

Individual voluntary arrangements IVAs are counted within these statistics once they are registered with the Insolvency Service and are reported by month of registration date. There can be a time lag between the date on which the IVA is accepted (known as the date of creditor agreement) and date of registration by licensed insolvency practitioners working for firms that specialise in this area.

Therefore, changes in trends are partly a result of this effect, especially where registrations straddle a month-end. This can lead to volatility in the data from one month to the next and create difficulty in constituting reliable short-term trends. In addition, recent statistics have been affected by technical issues experienced by an IVA provider, with approximately 4,950 IVAs registered in May 2020 that would otherwise have been registered between December 2019 and March 2020.

Three-month rolling averages have been calculated to smooth the data and indicate what the overall trend of IVA registrations might look like if the underlying data were less volatile.

Whilst three-month rolling averages are used to consider potential changes in IVA trends over time, both sets of numbers should be used with caution. There were 8,428 IVAs registered, on average, each month during the three months ending June 2020. This was a 33% increase when compared with the average number of registrations in each of the three months ending June 2019. However, the higher three-month rolling average for the latest period is due in part to the artificial increase in registered IVAs in May, as a result of the technical issues in reporting.

Commenting on the figures Christina Fitzgerald, Vice President of insolvency and restructuring trade body R3, said “The June statistics show both corporate and personal insolvencies fell compared to May’s figures. The decrease in the number of corporate insolvencies was driven by a sharp reduction in the number of Creditors’ Voluntary Liquidations and a drop in administrations. While personal insolvency numbers have also remained low, with bankruptcies showing a particular fall, the overall picture is much cloudier due to a number of issues that have affected the processing of Individual Voluntary Arrangement registrations.

“Today’s statistics still do not show the effects of the pandemic on personal and corporate insolvency levels. In part this is because of the time it takes to set up and enter corporate and personal insolvency processes, but also because of the Government’s support measures, which will have provided a valuable safety net for many people and businesses.”

“However, the economic contraction in April and May shows that consumer spending had halted, and consumer confidence was unsurprisingly low during both months, with no real improvement in June. People are naturally worried about their finances and the health of the economy over the next year, and with many thousands of job losses recently announced and with more predicted to come, it is easy to see why.”

“Our members are telling us that requests for formal insolvency support have not been significantly higher than before the pandemic. However, there has been a significant increase in existing and new clients asking for support with managing a reduction in demand for their products and services, and guidance around how they can manage working capital shortages in cashflow forecasts as the economy gets moving again.”

“The situation is still tough for many people with little sign of economic improvement on the horizon. That’s why anyone who starts to see problems with their business or personal finances should seek advice from a qualified source as early as they possibly can.”