Record numbers of personal insolvencies were announced in the Insolvency Service figures released at the beginning of May. There were 29,774 personal insolvencies (comprising 19,062 bankruptcies and 10,713 Individual Voluntary Arrangements), a shock rise of 19% on the same quarter in the previous year. A survey of the UK’s insolvency practitioners, expects a dramatic increase of 31% in personal insolvency by the end of 2009 compared with 2008. The survey was carried out by polling company ComRes for R3, the insolvency trade body, and gave a prediction of around 139,000 personal insolvencies for whole of 2009 in England and Wales.
President of R3, Peter Sargent, said, “These figures show the start of major rises in personal insolvency, which insolvency practitioners, those on the front line, believe will rise quarter on quarter this year. We know personal debtors usually take up to six months to seek a statutory debt solution and by the end of 2009 the figures will reflect this lag. We are seeing cases of people seeking non-statutory debt solutions (such as a Debt Management Plan) or simply hanging-on, neither of which is a viable solution and this is reflected in today’s figures. The small increase in IVAs of only 11% is counterintuitive to rises in bankruptcy and perhaps indicates debtors’ affairs are in such a poor state they’ve gone straight to bankruptcy.”
The R3 survey also revealed that over 33% of insolvency practitioners have seen an increase in personal fraud and a similar rise in corporate fraud. “Personal and corporate fraud is always there, but pressure is driving more people to consider it but now they are more likely to get caught. The scrutiny of cost-cutting exercises or an actual insolvency will reveal the crime. Companies try over invoicing, and people avoid paying taxes naively thinking they won’t get caught. Then often when bankruptcy nears, individuals try and transfer assets to keep those assets out of the insolvency. Corporate and personal fraud spiral in desperate times,” he added.
Company Voluntary Liquidations have also increased. Creditors Voluntary Liquidations (CVLs) are up by 62.9% on the same quarter in 2008. Peter Sargent observed, “A CVL is the insolvency mechanism by which company directors voluntarily wind up their own company. In good times it is generally used for companies which are no longer viable, for example due to advancing technology; or companies working on projects which have naturally come to an end. However, we believe that in this case there have been numerous company directors who have come into the New Year, looked at the gloomy economic outlook, and decided the best option is just to call it a day.”
Date:26 June 2009
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