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PERSONAL INSOLVENCY UP FOR SECOND CONSECUTIVE QUARTER

Published on:November 10, 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 2.6% on the previous quarter and down 2% on the same quarter in 2012. However, personal insolvencies increased for the second consecutive time in the third quarter 2013 to 26,030 but were 7.3% less than the same period 12 months ago.

Bev Budsworth, managing director of The Debt Advisor commented: “Today’s figures show that the situation for businesses isn’t really getting any better despite GDP growing at its fastest rate since 2010.

“However, the previous five years of little or no growth have taken their toll on weaker businesses who continue struggle to compete with businesses better equipped to capitalise on the improving economy.”

Bev’s comments are echoed in places such as Scotland where there has been a 45% increase in corporate insolvencies from July to September compared to the previous quarter this year.

‘Tactical’ corporate insolvency

According to Bill Grimsey, former chief executive of Wickes, UK landlords lost nearly £2 billion in 2012 as a result of the collapse of major retailers. This has since given rise to the British Property Federation issuing a warning to landlords to take larger deposits to better protect themselves against so called ‘tactical insolvencies’.

A tactical insolvency is defined where the administration process is timed to occur after a rent payment date, meaning that administrators get the benefit of several months of rent free trading. This is based on previous case law which could be overturned by landlords who have suffered as a result of the Game administration. Game entered administration in March 2012, the day after the traditional March ‘quarter day’ deadline for quarterly advance rent payment meaning that the administrators did not have to pay the rent for that quarter.

A recent report from the Centre for Retail Research (CRR) has stated that, up to the end of September this year, 43 retailers had failed affecting over 2,000 stores and nearly 22,000 staff. Bev commented: “Added to this is the recent announcement of Blockbuster entering administration for the second time. It’s clear that the High Street’s woes are continuing and more realistic efforts are needed to revamp the High street including a review of the rating system”.

Personal insolvency

Bev continued: “Personal insolvency was also up for the second quarter in a row but down over 7% on the same period a year ago – which is generally encouraging. However, these figures only include people who enter into formal insolvency which only includes bankruptcy, Individual Voluntary Arrangements (IVAs) and Debt Relief Orders. Today’s figures do not consider the many hundreds of thousands of people currently on debt management plans.”

‘Going nowhere’

“I believe there are far too many people who are ‘languishing’ about on debt management plans – paying far less off their debts than they could actually afford.

“These people are ‘going nowhere’ and as such I believe the formal insolvency figures should really be higher as many of these individuals would be better suited to and IVA or the new Protocol-Compliant Debt Management Plan (P-DMP).”

The P-DMP was originally mooted by the Department for Business Innovation & Skills (BIS) and officially announced by consumer affairs minister, Jo Swinson, after 18 months of development. The intention of the P-DMP was to have a rescue solution which is more sustainable and appropriate for consumers.

Debt free in 10 years

Bev explained: “The P-DMP acts as a quality assurance mark for consumers and has been introduced to promote and protect the needs and best interests of those who take out debt management plans, helping drive up standards in the much maligned debt management industry.

“The new plans have no upfront fees and should allow most people to become debt free in 10 years while guaranteeing that creditors who accept the plan will not take any collection of enforcement action aimed at getting them a higher payment.

“The protocol will ensure that regulated companies who offer P-DMPs are subject to an annual audit where client’s accounts are checked, debt solution providers are mystery-shopped to combat mis-selling and, more generally, that the practice complies with all relevant rules and guidelines, including the ones for P-DMPs.

“It’s all geared around making sure that people are recommended the most appropriate repayment plan for their circumstances and are helped toward paying off their debts as quickly as possible – many in under 10 years. I believe that, as more and more practices are sanctioned to provide these plans, we should start to see a further increase in IVAs and a reduction of non-protocol debt management plans.”

Bev concluded: “As an industry we have worked hard to get non-lending solutions fit for purpose. We now have protocol compliant IVAs and debt management plans which should provide consumers with a real choice to deal with their debts.

“Whether seeking advice from the fee charging or the free debt advice sectors, the main thing is never to bury your head in the sand; seek out that advice and take your first steps to realising a life free from the stress of serious debt.”