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INSOLVENCY LOWEST SINCE 2008 BUT RETAILERS’ NIGHTMARE CONTINUES

Published on:February 1, 2013Author:The Debt Advisor

Figures published today by the Insolvency Service show that company liquidations in England and Wales in the third quarter of this year were down 3.3% on the previous quarter and down 10.7% on the same quarter in 2011. Personal insolvencies dropped in the fourth quarter 2012 to 25,302 and were 12.9% less than the same period 12 months ago.

Bev Budsworth, managing director of multi award-winning The Debt Advisor said: “It’s really encouraging to see that today’s corporate and personal insolvency figures are at their lowest point since mid-2008, it seems to show that things are starting to look brighter – at least in terms of debt.

“However, although liquidations and corporate insolvencies in general are down, they do tend to mask the extent of the true problem. In 2012, around 20,000 companies were wound up and for every one of these; at least a further 80,000 to 100,000 ran out of funds and were struck off with creditors having no chance of making a recovery.”

Gloomy

“The news for the High Street has been particularly gloomy with 2012 being the worst year since 2008 with 54 large retail companies going bust compared to 31 in 2011. This effectively closed around 4,000 stores and affected 48,000 employees. These statistics, which included long-established businesses such as Comet and Jessops, was made up of many businesses that could have survived a year or so in a recession but not four to five years of sustained low profits or losses. Apart from the loss of employment and the dent on consumer confidence, the biggest cost is that the taxpayer has to fund redundancy costs.

“Taking Comet’s collapse in isolation, the cost in redundancy payments to the government, and therefore to all of us was £23.2 million, not to mention the on-going double whammy to the public purse in payments to ex-staff on Job Seeker’s Allowance and therefore not paying income tax or National Insurance contributions.

“It is hardly surprising that following two recessions, zero growth and austerity measures which have hit consumers’ pockets hard, we are seeing such long-established businesses fail. Many of these companies could possibly have survived with more support from banks who have removed overdraft facilities with little or no notice, or with simply more time to help them do ‘deals’ with their creditors.”

Bev’s comments come at a time of more bad news for the economy with growth contracting by 0.3% in the final quarter of 2012, prompting fears of an unprecedented ‘triple dip’ recession, and pre-Christmas retail sales dropping slightly in December.

‘Zombies’

Bev Budsworth continued: “We are far too quick to label these companies as ‘zombies’, read them their last rites and then bury them. Many of these businesses just need some ‘tough love’ in order to get back on their financial feet. Turning these businesses around isn’t easy and takes a significant amount of hard work. It’s only by saving some of these retailers like Comet which was part of our fabric, and nurturing them back to health, will we see optimism and therefore confidence, start to return.

“Comet may well have been saved; we’ll never know, but for a business that was 80 years old employing over 6,600 people at 236 stores to suddenly go under was a shock and creates a void that no amount of business start-ups can fill.”

Brink of recession

“Today’s figures for personal insolvency were also down nearly 13% on the same period a year ago and at the lowest levels since 2008 – which is great news. It’s also good to see that bankruptcies continue to fall and we continue to see most people opting for an Individual Voluntary Arrangement (IVA). However, our whole economy remains extremely fragile even though insolvency in general seems to be falling,” said Budsworth.

“Unfortunately we again find ourselves on the brink of recession, the third time in four years, but fortunately the effects aren’t as bad as they could be with unemployment bucking the trend, showing its highest quarterly fall since 2001 and inflation remaining steady.

“However, it’s the day-to-day expenses that continue to bite hard on people’s finances; petrol, gas and electric, food – all of these are on the increase and continue to be the main source of worry for householders who are increasingly turning to more risky forms of credit to pay the bills.

“The real worry is that we are seeing more and more people coming to us after taking out payday loans which they can no longer afford. These types of loans are easy to obtain but notoriously difficult to pay off with APRs often over 4,000%.

“Resorting to pay day loans when you are already in debt just adds to the misery. These loan companies are not the most patient if you cannot pay back the loan – and the added pressure can often seriously affect your wellbeing.”

Bev concluded: “If you are unable to afford your commitments, there are a number of formal and informal plans that enable you to work with your creditors and repay your debts at a level you can afford.”

The figures from the Insolvency Service consisted of 10,986 Individual Voluntary Arrangements, a decrease of 15.8% on the corresponding quarter in 2011, 6,919 bankruptcies, representing a decrease of 20.9% on the corresponding quarter of 2011 and 7,397 Debt Relief Orders, up 0.5% on the corresponding quarter in 2011.