Insolvencies continue to soar
Almost 5,000 companies in England and Wales hit the wall in the first three months of the year while personal insolvency nearly hit a record high, figures from the government's Insolvency Service reveal.
This is a 44% increase in company liquidations from the same period a year ago.
Richard Fleming, head of restructuring at KPMG, says: "Unfortunately we are seeing companies with nowhere else to go failing as their backers, realising that they are throwing good money after bad, snap the purse closed.”
Meanwhile, personal insolvencies also jumped during the first three months, with 19,062 people entering into bankruptcy, up 23.4%. Individual Voluntary Arrangements (IVAs) were up 11.8% from the same period in 2008.
Stephen Speed, chief executive of the Insolvency Service, says the sharp rise in company insolvencies reflects the impact of the recession on business. “It is vital that any person or any company concerned about their financial position should seek advice as early as possible. Insolvency can often be avoided entirely by taking early action," he adds.
Experts expect the number of both company and personal insolvencies to continue to rocket.
Mike Gerrard, a personal insolvency partner at Grant Thornton, says: "The personal insolvency figures indicate the growing difficulty facing UK households trying hard to juggle their debt whilst trying to remain employed during the downturn.”
Generally speaking, insolvency is to businesses what bankruptcy is to individuals. A company is insolvent if the value of its assets is less than the amount of its liabilities, or it is unable to pay its liabilities (loan payments) as they fall due. It’s an offence for an insolvent company to keep trading, so the main options available to an insolvent company are: voluntary liquidation, compulsory liquidation, administration or a company voluntary arrangement.
A person (or business) unable to pay the debts it owes creditors can either volunteer or be forced into bankruptcy – a legal proceeding where an insolvent person can be relieved of their financial obligations – but loses control over their bank accounts. Bankruptcy is not a soft option. Although it may wipe the financial slate clean, it is extremely harmful to a person’s credit rating (it will stay on your credit record for six years) and will adversely affect your future dealings with financial institutions. Bankruptcy costs £600 paid upfront.