The figures consisted of 12,225 Individual Voluntary Arrangements (IVAs), an increase of 27.4% on the corresponding quarter in 2008, 18,870 bankruptcies, representing an increase of 15.3% on the corresponding quarter last year and 1,978 Debt Relief Orders (DROs).
Bev Budsworth, managing director of The Debt Advisor and Credit Today’s 2008 ‘Debt Counsellor of the Year’ and ‘Personal Insolvency Practitioner of the Year’, commented: “The number of personal insolvencies represent an all time high for England and Wales. We have seen a huge increase in referrals of personal insolvency cases from IFAs and mortgage brokers from the first half of 2008 to the first half of 2009. It’s encouraging to see that the brokers now have faith that IVAs and debt management plans do work and regard them as ‘fit for purpose’.
“Mortgage brokers and IFAs are often the first port of call as debtors will look to see if they can raise money to clear their debt. For many, remortgaging is no longer viable or best advice. Brokers and IFAs are now far more aware of IVAs and debt management and it is encouraging to see they are looking after clients through good times and bad.
“I believe the rise in IVAs is to be expected. The protocol has definitely helped to make IVAs much more workable. However, I still think that organisations that represent creditors need to take a more practical approach and not just squeeze every spare penny out of debtors in contributions. IVAs require discipline and usually mean that for a five year period, debtors have to adhere to tight budgets which, if too tight, make life unbearable and the IVA will ultimately fail.
“Today’s statistics now include numbers of DROs which have contributed to the record statistics we see today. Launched in April 2009, these provide debt relief for individuals with unsecured debts under £15,000, gross assets of less than £300 and a disposable income under £50. As a result of objections from creditors or investigations by the official receiver, it is understood that a number of DROs are rejected as assets have not been fully disclosed. Numbers are likely to increase in line with awareness and intermediaries understanding the process. Currently, there is an anomaly with the DRO in that if debtors have total pension fund assets over £300; this precludes them from the order even though their pension fund is likely to be excluded from a bankruptcy.
“Bankruptcies remain relatively constant, though I would have hoped to see a reduction in these figures to early 2008 levels. It’s clear that people with serious levels of debt continue to be ‘pushed’ down the bankruptcy route as a quick and often lucrative fix for more unscrupulous, non-regulated advisers. We have even seen cases of individuals coming to us saying that they have been persuaded to declare themselves bankrupt and charged up to £5,000 for the privilege.”
The number of company liquidations reached 5,055 in the second quarter of 2009 an increase of 2.9% on the previous quarter and 39.1% on the same period a year ago. The figures consisted of 1,457 compulsory liquidations, a decrease of 6.8% on the previous quarter but up 8.7% on the corresponding quarter in 2008 and 3,598 creditor’s voluntary liquidations (CVL), representing an increase of 7.4% on the previous quarter and 56.8% on the corresponding quarter of the previous year.
“Small businesses are undoubtedly the backbone of our economy there are 4.7 million of them in the UK employing over 13 million people and contributing to over 50% of UK GDP”, added Budsworth. “Many of these businesses are finding it extremely difficult to source finance at the moment, especially if they have a weak balance sheet and limited reserves that are continually being eroded by falling sales and bad debt.
“I believe we are simply not doing enough to help small businesses and we must do more by leveraging a rescue culture to help turn them around. A recent House of Commons regional paper gave quite a bleak outlook. There seems to be layers of organisations set-up, receiving taxpayers’ money to help businesses through the recession but not much consultation with people at the ‘coal face’ the professional advisers who are speaking to these businesses on a daily basis.
“We have a perfectly functional commercial rescue culture in the UK with the necessary skills and expertise to turn many ailing businesses around. I don’t see the need for more taxpayers’ money to be ploughed into free debt relief services at a time when we can all least afford it! There are plenty of commercial advisers who have the trust and relationships with these companies who are best placed to advise.
“Company Voluntary Arrangements (CVAs) continue to be low, which is unfortunate. A CVA is an extremely useful tool and can save viable businesses. They are often underused and abandoned in favour of liquidation or administration. The CVA can protect the business, allowing it to retain its assets and provide for debt forgiveness. It can also save the directors thousands of pounds as personal guarantees do not crystallise and, most importantly, creditors can get some of their money back.”
