Company Insolvencies Fall

According to the latest figures from the Insolvency Service, the number of companies going into administration, receivership or company voluntary agreements (CVAs), has dropped to its lowest level since the end of 2007.

The figures show that 986 firms went to the wall in the third quarter of 2012, which was a 25 percent drop on the previous quarter, although personal insolvencies rose slightly.

The number of personal insolvencies rose to 28,062, which was a 2 percent increase on the second quarter, although the total was still 7.2 percent lower than it had been a year earlier.

Although the number of company insolvencies has decreased, which is probably a reflection of the recent revival in the economy, up by 1 percent at the end of the last quarter, many businesses are stagnating, with no hope of growth.

According to R3, the trade body for insolvency experts, there are 146,000 such companies in the UK, called ‘zombies’, which means that they are just about able to pay the interest on their debts but cannot reduce the debt itself and are being ‘kept alive’ by their bank.

Similarly, while the number of personal insolvencies is down, that is also probably just a reflection of the cost of going bankrupt, which at £700 is considered a lot of money.

Despite the number of bankruptcies halving, the rate of Individual Voluntary Arrangements is steady and there has been a surge in the use of the relatively new insolvency procedure called a Debt Relief Order (DRO).

Introduced in April this year, a DRO allows people with debts of less than £15,000 and minimal assets or surplus income to write the debt off without having to enter full-blown bankruptcy.

Tim Close is an accountant specialising in business insolvency, debt recovery and business rescue.

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