Personal insolvencies decrease 12%

17th August 2020

The Insolvency Service has published its latest figures which indicates that in July personal insolvency numbers in England and Wales decreased when compared to June 2020 (12% lower) and July 2019 (40% lower).

There were 1,621 Debt relief orders (DROs) and 913 bankruptcies in July in England and Wales (the latter was made up of 849 debtor bankruptcies and 64 creditor bankruptcies).

There was a 31% reduction in DROs and a 38% reduction in bankruptcies in July 2020, compared with the same month last year. The reduction in bankruptcies was driven by a 27% fall in debtor bankruptcies and a 79% 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.

In three months ending July 2020 there was a monthly average of 7,322 registered individual voluntary arrangements.

Commenting on the personal insolvency numbers Colin Haig, President of R3, the insolvency and restructuring trade body, said “This month’s decrease has been driven by a reduction in the number of Debt Relief Orders (DROs), and Individual Voluntary Arrangements (IVAs). Bankruptcies have increased slightly, due to a small rise in the number of debtor applications, but they are still well below pre-pandemic levels.”

“It’s important to note that although today’s statistics suggest the pandemic is starting to affect corporate insolvency levels, the Government’s continued support for businesses and consumers means we’re not much nearer to understanding how COVID-19 is truly affecting underlying corporate or individual distress than we were last month.

“Our members are telling us that it may not be long before companies which would be viable under normal circumstances begin to seek support from an insolvency and restructuring professional, as a result of the impact of the pandemic.

“This may lead to an increase in requests for personal insolvency support if people lose their jobs or agree to take on liability for a business’s debts as part of an unsuccessful attempt to turn it around.

“Another factor that may also affect personal insolvency numbers is the ending of the various payment holidays that are currently available – especially if people’s incomes haven’t returned to the level they were at before the pandemic began.”

“Our advice to anyone who is worried about their personal or their business’s financial health is to seek advice from a qualified professional as soon as they start to see signs they might be in trouble. Doing so will give them the best chance of turning their situation around – and more options and more time to take a decision on how they move forward.”

David Heathcote, Personal Insolvency expert at TDX Group, an Equifax company predicts a steep rise in personal insolvencies in Q4 and into 2021 despite a period of reduction over lockdown. “The volume of individual voluntary arrangements (IVAs) and trust deeds decreased significantly in Q2, down by 39% from Q1 and 38% year-on-year*. Unfortunately, this trend is mainly due to the temporary relief of forbearance, and a truer picture will emerge with an expected steep rise in personal insolvencies towards the end of the year.”

“The financial shock of COVID-19 means the UK economy is heading for a sharp recession, with an estimated 10% contraction this year**. The government furlough scheme and support measures such as emergency payment freezes, though much needed, are masking the true landscape of deteriorating personal finances, and may create a bottleneck in personal insolvencies in Q4.”

“Workers from industries badly affected, such as retail, leisure and tourism who would normally be eligible for an IVA are being advised to hold fire for full visibility on their job security. During this period of financial uncertainty, it’s difficult for people to commit to fulfil the full payment obligation term for an IVA, which is often five years.”

“As furlough and self-employment schemes, as well as payment freezes on mortgages, credit cards and utilities end in Q4, the UK will face another surge of consumers entering financial difficulties. New personal insolvency volumes could rise rapidly, a trend that will likely persist into 2021. In this environment, insolvency companies must prepare for extra capacity and ensure they treat consumers with compassion and flexibility, and use relevant data to find fair outcomes for those in financial difficulty.”