In Focus Risk


Telling the full story


Important consumer and commercial insolvency statistics have been published, but they need analysis to truly understand them


Duncan Swift Deputy vice-president, R3


Although increasing, the year-on-year,


insolvency numbers are still historically low. Low interest rates and easy access to alternative forms of finance have allowed many companies to keep going when, previously, they would have had to enter an insolvency procedure. Our members report that distressed


companies are still, in many cases, able to refinance themselves, while struggling businesses are increasingly seeking advice early enough to restructure and turn themselves around outside of a statutory insolvency procedure. Investment in new processes, especially


technological advances to streamline processes and to ensure a comprehensive and customer-friendly online offering, ought to be on directors’ minds. Standing still while others leap ahead is


not an option, and, with concepts which would once have been classed as sci-fi – AI, robotics, self-driving vehicles – on the brink of huge breakthroughs, there are enormous opportunities out there for UK businesses. With footfall levels on the high streets


diminishing, and with both corporate clients and consumers expecting seamless logistics and fulfillment, keeping pace with technological change is crucial.


Personal insolvencies Official personal-insolvency numbers have been rising since mid-2015, returning insolvencies to a level last seen in 2013 and 2014. The dip in numbers from the last quarter


should not be read into too much just yet, given that the third quarter was itself a record-breaking three months, and the three highest quarterly levels of IVAs were all recorded in 2017.


March 2018 www.CCRMagazine.com There were pressures pulling indebted


individuals in different directions across the previous 12 months. On the one hand, unemployment was at,


or near, record lows, which helped many stay afloat. On the other, wage growth has been poor, inflation has taken a bite out of disposable incomes, and much of the employment available can be insecure, making it much harder for people to budget. Consumer-debt levels have continued


to rise, although recent research by the Financial Conduct Authority (FCA) and the Bank of England found that much of the increase in personal debt has been taken on by those who are more able to shoulder it – that is, it has been concentrated among borrowers classed as ‘prime’ rather than ‘sub-prime’. But, while we are nowhere near close to


the insolvency levels seen before the financial crisis, people are still increasingly struggling to keep up with their bills.


There is some evidence that lenders are


tightening their credit conditions, making consumer finance more expensive and less easily available, but there is still enough slack in the market that many borrowers are able to roll their debts over, keeping their costs down. If this situation were to change, it would be easy for more people to be caught out. Noticeably, debt-relief orders and the


bankruptcy numbers held relatively steady over 2017. IVAs have been responsible for much of the growth in insolvency numbers in recent years, while bankruptcies, which are reserved for the most serious cases of indebtedness, had been consistently falling since the financial crisis. Bankruptcies that were triggered by the


person in debt have increased slightly on the previous year. With so much uncertainty in the air, it


is really important that anyone who is struggling with their debts, or who feels their financial situation is precarious, should seek help and advice from a qualified and regulated source. Government plans to introduce a short


Government plans to introduce a short ‘breathing space’ for seriously indebted individuals are welcome, but it will take several years to actually implement. That will be too late for many


‘breathing space’ for seriously indebted individuals are welcome, but it will take several years to actually implement. That will be too late for many. With personal insolvencies, it is always


worth noting that the official statistics do not tell the full story: there is a lot of ‘hidden’ insolvency out there. There are potentially tens of thousands of


people in non-statutory debt-management plans. Although these plans are regulated by the


FCA, there is no record of exactly how many there are. This makes it impossible to grasp the full scale of serious indebtedness. CCR


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