Insolvency figures hit record high

The number of people entering into insolvency in England and Wales rose to a record total of 134,142 last year, official figures from the Insolvency Service showed today, and experts say the figure is likely to rise further in 2010.

Rising unemployment and the ongoing impact of the credit squeeze drove the figure beyond the previous record of 107,288 personal insolvencies set in 2006, and meant that over the course of the year one in every 320 adults entered into formal arrangements with their creditors.

Today's figures show a total of 74,670 individuals were declared bankrupt last year, a rise of 10.7% on 2008's figure. The number of individual voluntary arrangements (IVAs) – where borrowers arrange to pay off a proportion of their debt over a set period of time – leapt by 21.8% over the year to 47,641.

A total of 11,831 of the insolvencies were in the form of debt relief orders (DROs), which were introduced in April last year and allow consumers with debts of less than £15,000 and minimal assets to write off their borrowing without entering into a full-blown bankruptcy, and have proved more popular than expected.

Insolvency experts at KPMG said they believed more than 223 people a day were choosing to petition for bankruptcy. The firm's director of personal insolvency, Chris Nutting, said: "The figures show that there are still many people experiencing serious financial difficulties, despite record low interest rates.

"Whilst the UK is technically out of recession, the harsh reality is that many people are still living beyond their means. Lessons from history show that personal insolvencies will continue to rise after the recession finally ends, and for some time to come."

Some experts had suggested the number of insolvencies would have fallen over the last quarter of last year as consumers deferred dealing with their debts until after Christmas. But the figure increased from 35,242 to 35,574.

The number of bankruptcies was down by 5.5% on the same period of the previous year, at 17,007, but the number of IVAs leapt by 26.3% to 13,219. On top of these, 5,348 DROs were granted.

Louise Brittain, partner in Deloitte's Contentious Insolvency Group, said the figures bucked a trend.

"This is unexpected, as traditionally people tend to hold off addressing financial issues during the festive season, rather saving them for the new year," she said.

"It is surprising to see the dramatic rise in the number of IVAs – up 26%. This is a result of increased creditor pressure which is unlikely to let up any time soon, and highlights the desperate financial difficulties facing individuals."

Insolvency experts said they expected there to be even more insolvencies in 2010, with Brittain predicting the number could reach 145,000. Most agree that historically low interest rates have allowed some borrowers to keep up repayments on debts which would otherwise have been unmanageable, and that any rare rise could push many more people into difficulty.

On top of this, rising awareness of DROs is likely to lead to more borrowers signing up for the orders.

Meanwhile, the number of companies going into liquidation also increased in 2009, rising to 19,077 – the highest figure since 1993. But the quarterly breakdown suggested the picture was improving for businesses as the year ended. During the last three months of last year 4,372 firms were wound up, a 4% fall on the previous quarter and down 3% year-on-year.

There was also a significant decline in the number of companies going into administration, which is often a more representative measure of corporate failures.

Between October and December 849 companies entered into administration, a fall of 58% year-on-year and the lowest number since the fourth quarter of 2007.

Howard Archer, chief UK economist at his IHS Global Insight, said the outlook for companies currently struggling would depend on how easy it became for them to access credit.

"Despite the economy staggering out of recession in the fourth quarter of 2009, economic activity is unlikely to be strong enough for some time to come to stop many more companies from going out of business, although hopefully the number failing will moderate further.

"Much will depend on to what extent credit conditions ease over the coming months, as an inability to access credit continues to plague a number of companies, particularly smaller ones."