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Lies, Dammed Lies and Statistics

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It is said that there are lies, dammed lies and statistics. The latest figures for corporate insolvencies released by the Insolvency Service for England and Wales appear to bear that out.

It is said that there are lies, dammed lies and statistics. The latest figures for corporate insolvencies released by the Insolvency Service for England and Wales appear to bear that out.

The figures recently released for the third quarter of 2010 show that there were just under 4,000 liquidations (compulsory and voluntary), which is down by around 2% from the second quarter and down 14% from the same quarter in 2009. There were also just over 1,000 other corporate insolvencies, including receiverships, administrations and company voluntary arrangements. This figure is down just under 2% from the second quarter of 2010 and down 27% from the same quarter in 2009.

So do these figures mean that the economy is in fact recovering strongly? Plainly that is not the case. Although the figures are certainly better than 2009, when the economy was still in the depths of the recession, the current figures are obscured by several important issues.

Firstly, interest rates are of course at a record low and there is serious doubt about how many businesses can survive when rates increase, as they inevitably must. Secondly, Revenue and Customs are still operating their fairly generous “Time to Pay” agreements. Whilst these are helpful for a large number of businesses, the worry is that when HMRC finally stops supporting those companies, they will not have become strong enough to survive independently. Thirdly, we have traditionally seen insolvencies increase as the economy comes out of recession.

The figures for personal insolvencies perhaps offer a more accurate picture. There were just under 34,000 personal insolvencies in the third quarter of 2010 being a combination of bankruptcies, individual voluntary arrangements and debt relief orders. This is a very slight decrease from the second quarter and a decrease of just under 4% on the third quarter of 2009. Whilst bankruptcies have dropped since 2009 by an apparently significant 24%, debt relief orders have increased. Debt relief orders deal with the smallest of personal insolvencies, applying to debtors who owe less than £15,000 in total and are on low income. Interestingly, the number of individual insolvencies is significantly higher in the north than in the south.

As with companies, it must be the case that any real rise in interest rates will also tip more individuals into insolvency, as well as unfortunately precipitating an increase in house repossessions.

So our pessimistic view is that come 2011, the overall number of insolvencies and in particular corporate insolvencies will begin to rise again as a result of the factors mentioned above. The corporate recovery team at Clarion is already seeing an increase in instructions generally, including several major restructuring assignments. This type of transaction had all but disappeared for the last 18 months, so the return of such deals does at least suggest that confidence is returning to the market with funders willing to lend and invest.

Our advice, as ever to businesses or individuals facing insolvency is to seek advice from the appropriate professionals as early as possible, and the sooner the better.

This article was written by corporate recovery partner and was featured in The Yorkshire Post on Tuesday 7 December.

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