UK Insolvency Rate Falling – Comment by Simon Morris

By Simon Morris On Thursday, February 13 th, 2014 · no Comments · In ,

Simon Morris

Data released by the government this month suggests that the rate of UK insolvency has continued to decline as the number of individuals and companies declaring bankruptcy again sees a steady decrease.

Official data states that 2013 saw one in 166 companies throughout England and Wales declare bankruptcy, falling from one in 144 in 2012.

Accountancy firms across the industry have suggested that several factors, including low interest rates and increased patience shown by creditors such as HM Revenue and Customs as well as banks, have contributed to the lack of bankruptcy declaration in the past year in the face of a difficult economic climate.

However interest rates were lowered to aid economic recovery by the Bank of England, and industry experts fear that once these interest rates inevitably rise, companies could be hit by increasing costs such as the cost of premises rental and the cost incurred by repaying previous loans. This would contribute to the resurgence in the rate of insolvencies throughout the UK.

Accountancy firms also collectively hold the opinion that insolvency data released by the government has placed a positive spin on business activity. This is because said data excludes companies that despite not officially being declared insolvent have ceased trading operations. The data also excludes those surviving only through servicing their debts.

Matthew Tillett, portfolio manager at Allianz Global Investors has weighed in on the debate. He has stated that “looking ahead, there is no shortage of catalysts to drive the insolvency level rate up from its current low. A rise in interest rates would expose many poorly funded companies.”

Specifically firms in the retail and construction industries suffered the largest number of liquidations across the board. This stood at 2,819 for construction and 2,160 for retail throughout the last quarter of 2013. However both sectors have a large number of companies and these numbers could merely be indicative of their respective sizes.

Meanwhile individual insolvencies decreased by nearly 8% standing at 101,049 for 2013 in contrast to the figure recorded in 2012.

On receiving these numbers, Matthew Chadwick, head of personal insolvency at BDO, commented that bankruptcy and insolvency figures for individuals are no longer a surprise and furthermore that they reflect improved economic conditions for families across England and Wales.

However whilst accountancy firm Wilkins Kennedy agreed that the decrease in personal insolvencies was predicted, they alluded to the fact that this fall could be attributed to the growing payday loan and debt management industry.

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