It feels like a lot has taken place since our last commentary on the Insolvency Statistics for Q1 when you consider the UK’s decision to quit the EU and then the subsequent lowering of the base rate to 0.25%.
The decision by Mark Carney to cut the bank rate to a new record low has naturally reduced borrowing costs for households and businesses and is a further pinch in the arm to savers who will continue to suffer from even lower easy-access and fixed term saving rates.
It is therefore interesting to read the latest numbers to have been released by the Insolvency Service for England & Wales that covers this three month period of significant political and economic change.
The impact of recent economic and political factors on Q2 insolvency numbers
Company insolvencies remained in decline with lower levels recorded than in the previous quarter. An estimated total of 3,617 companies entered insolvency in Q2 – 2.7% lower than this time last year. This was largely driven by a significant reduction in companies subject to a compulsory winding-up order with 18.6% down on the previous quarter and 14% lower than Q2 2015.
In contrast, it was disappointing to see a further rise in the number of recorded individual insolvencies as 22,503 people became insolvent between April and June. This is the fourth consecutive quarter that this figure has risen and was largely due to the increase in IVAs - 15.4% higher compared to Q1 2016 and a staggering 42.7% more than the same period in 2015.
Cheaper borrowing costs coupled with a continuation in creditor tolerance certainly played a part in the lower number of businesses entering an insolvency process but it is certainly a major concern to see that people are still struggling to pay their debts despite the further reduction in interest rates and with employment levels remaining high.
What about the future?
Will the fallout from Brexit have any real impact on these numbers going forward?
It is still way too early for any meaningful predictions although uncertainties in the market will certainly put companies at risk of stagnation which in turn could result in financial difficulty further on down the line.
As for the UK Insolvency Profession, domestic insolvency is likely to be unaffected although cross-border work that is handled from the UK is often beholden to varying uncontrollable regulations and rules.
One such application is the EC Regulation that is a commonly applied framework that deals with insolvent companies and individuals that hold assets across various EU member states. Striking a deal that works or the UK around the EC Regulation will therefore be an important next step for the government to take if the UK is to remain a major player in cross-border insolvencies.
Furthermore, not being at the table for future negotiations on European insolvency regulations could in turn make it harder for UK Insolvency Practitioners to deal with cross-border matters that involve the retrieving of assets on behalf of the creditors.
We are now half way through Q3 and the implications of Brexit on UK and cross-border insolvency numbers is still very much an unknown. Last month’s interest rate cut is unlikely to have altered the downward trend of corporates entering an insolvency process although it will be interesting to see whether personal insolvency numbers continue on their rise following the recent introduction of the General Fee charged by the Insolvency Service for processing bankruptcies.
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