IVAs continue to rise

The Insolvency Service has published its latest insolvency statistics which have shown a year on year rise in individual voluntary arrangements (IVAs) in England & Wales.

In the three months ending May 2020 there was a monthly average of 7,899 registered IVAs.

The figures show that there were 1,540 Debt relief orders and 739 bankruptcies for May 2020 in England and Wales (the latter was made up of 690 debtor bankruptcies and 49 creditor bankruptcies).

There was a 32% reduction in DROs registered, compared with May 2019 and bankruptcies fell 49% in comparison to the same month as last year. The reduction in bankruptcies was driven by a 40% fall in debtor bankruptcies and an 83% 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 period3 and in part, a result of reduced operational running of the courts during this time.

There were 7,899 IVAs registered, on average, each month during the three months ending May 2020. This was an 11% increase when compared with the average number of registered IVAs during each of the three months ending May 2019.

The short term effects of the  UK lockdown on individual insolvencies shows that during the first three weeks of March, prior to the UK lockdown on the 23rd March, an average of 195 individuals entered insolvency each day through bankruptcy or DROs. The daily average number of bankruptcies and DROs reduced in April and remained low in May, when compared with the pre-lockdown period in March. .

Commenting on the figures Christina Fitzgerald, Vice President of insolvency and restructuring trade body R3, said “Today’s figures show that the number of individual insolvencies increased, largely driven by a rise in the numbers of IVAs.”

“On the personal insolvency side, while the numbers of Debt Relief Orders and bankruptcies have fallen, both compared with last month and with the same month last year, there was a sharp rise in IVAs. However, as the Insolvency Service notes, this increase has been strongly affected by technical issues around registering IVAs, so today’s figures might not represent a true picture of personal insolvency levels.”

“While these statistics provide another snapshot of how the pandemic is affecting businesses and consumers, they still do not provide a full account of the impact it is having on levels of insolvencies.  ”

“Indicators over recent months suggest that an increase in insolvency numbers is coming, but this has not yet materialised. We are potentially in the period of calm before the storm, as indicated by the unprecedented 20.4% fall in GDP in April, published today.”

“It’s clear that we’re set for a period of economic turbulence. In addition to today’s shocking GDP figures, research also shows consumer spending and consumer confidence – which are indications of both the health of the nation’s personal finances and of how businesses will fare going forward – fell significantly between March and April, and many businesses will face a rocky road until this improves. The rent quarter day, which occurs in the fourth week of June, will also put extra pressure on many businesses.

“It’s also worth noting that job vacancies were also significantly lower in April than in March, according to the Government’s own figures, and businesses are not optimistic about their abilities to resume hiring again in the short term. This is bad news for anyone whose finances have taken a hit, and indicates that the return to pre-pandemic economic conditions may take a long time.

“On the consumer side of things, debt repayments have actually increased since lockdown, but research is also showing that some people are falling behind on paying rent, bills and mortgages, which is definitely cause for concern.”

“The longer lockdown continues, the more damage the economy will sustain. Yet easing restrictions on trading prematurely could lead to a wave of new infections and an even greater danger to business and personal finances. The Government has a difficult job in balancing these considerations as it plots a path forward.”

“Given the continuing uncertainty around how the country returns to ‘business as usual’, anyone worried about their personal or business finances should seek advice as soon as possible from a professional and reputable source. The earlier they do, the wider range of potential solutions they’ll have open to them, and the more considered a decision they’ll be able to make about their next move.”