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Are we out of the woods yet?

With the insolvency figures for the last quarter of 2009 published on 5 February 2010, insolvency professionals have been looking for signs that we are emerging from the worst recession in 60 years.

What are the facts and figures?

Personal Insolvency
Individual insolvencies increased nearly 25% on the same period as a year ago with 35,574 individual insolvencies in the final quarter of 2009. Bankruptcies were up 5.5% on the same period last year totalling 17,007 and voluntary arrangements were up 26.3% on the same period last year at 13,219.

2009 saw more personal insolvencies than in any previous year.

Corporate Insolvency
All liquidations have decreased 1.7% on the previous quarter (there were 4,566 liquidations in the quarter). This was also a decrease of 1.1% on the same period a year ago.

And there was a major fall in the other main corporate insolvency process, administration, down 34.2% on the corresponding quarter in 2008. In quarter 4 of 2009 there were 849, whereas in quarter 4 of 2008 there were 1,289 administrations (as adjusted).

But overall, there were more corporate insolvencies in the whole of 2009 than in any year since 1993.

So what is going on behind the figures?

Personal Insolvency
The high level of personal debt which has been accumulated over recent years has become unsustainable, particularly in view of the increase in unemployment during the recession. 84% of all bankruptcies are on the individual debtor's own bankruptcy petition and in our experience the vast majority will be debtors with consumer debts they cannot pay.

As was said last week by the head of the insolvency professionals' organisation R3, Peter Sargent, these individual insolvency statistics are but the tip of the iceberg.  It is thought that there are one million people who have not faced up to their debts or are struggling on with payment, and it is estimated that there is a further 500,000 people who are negotiating with their creditors who do not form part of the formal insolvency statistics.

Corporate Insolvency
A year ago there were many large corporate insolvencies. Typically, emergence from a recession brings an increase in insolvencies.  But this time it seems to be different. Why?  Two key factors seem to be the leniency of the taxman with his "time to pay" programme, and also the willingness of banks to stand by their clients and not realise losses. The unanswered question is whether this has prevented business failures, or merely postponed them.

So what can we look forward to?

The good news for the wider economy is that insolvency practitioners have been significantly quieter in the last quarter of 2009 than many expected to be at this time in a recession.  But to some extent this paints a false picture of the economy as whole.  While commentators will be quick to point to the drop in corporate insolvencies indicating brighter times ahead, the statistics may hide the nasty surprises lurking just around the corner.

It appears inevitable that whoever comes to power in the forthcoming election, cuts in government spending and the need to raise taxes is going to increase pressure on business and individuals.  One would expect this to feed directly into insolvencies in the second half of the year.  Anecdotal support for this view comes from the debt buying industry, which specialises in buying in and collecting bad debt from lenders, and which is reporting increased difficulty in making recoveries.

Finally, a statistic you will not find in the official figures. According to this week's Law Society Gazette, legal recruiters in the City are experiencing a boom in locum jobs to cover maternity leave.  Recession clearly has consequences which are not purely economic.

If you or somebody you know is experiencing any financial difficulties please feel free to contact any of our insolvency and business recovery team who are able to advise you on the most appropriate action for you or your business.