Insolvency statistics released on 7th February 2014 by The Insolvency Service show the lowest annual level of individual insolvencies since 2005.

Just over 101,000 individual insolvencies were registered in 2013 which equates to 1 in every 445 people becoming insolvent last year, a fall of almost 8% from the previous year.

The figures are undeniably good news on the face of things but there are still areas for concern. It is unusual to see such a vast drop in personal insolvency figures during what has become a very serious ‘cost of living crisis’.

Worryingly the only thing that seems to be holding back a flood of insolvent individuals is a historically low interest rate. People are managing to scrape by on what they have; struggling but not truly in a position to be declared insolvent. Any rise could easily tip these households over the edge into a deepening debt spiral.

The recent positive upturn in the economy and fall in unemployment has led many to believe that interest rates could be very much on the verge of an increase. The Bank of England had previously tied interest rates into the level of unemployment, however that target has almost been reached and much sooner than expected. The recovery is still in its infancy and many people have yet to feel its effects in a real way.

Bank of England governor Mark Carney announced on Tuesday that interest rate levels would now be determined not just by unemployment, but by a wider range of indicators. Some believe however that a rate rise could come as early as next year.

There are many individuals out there that are beyond struggling but still do not show up in the insolvency statistics as they are unable to access formal insolvency procedures for one reason or another. These are individuals in debt management plans. It is time that these informal arrangements began to show up in the figures to truly give a complete picture of individual insolvencies.

Corporate Insolvencies

It is not only individuals that are benefitting from historically low interest rates; many businesses have been able to prevent insolvency and collapse as well. However just as with individual insolvencies this is unlikely to last once interest rates increase.

Corporate insolvencies have kept up their downward trend in 2013 with just under 15,000 liquidations down 4.5% from 2012. There were also 3,859 other corporate insolvencies compromising CVAs, administrations and receiverships; this represented a decrease of 16% on 2012.

Giles Frampton, vice-president of insolvency trade body R3 said:

“Given the recent pick-up in the economic recovery though, it is not clear how long this trend will last.”

“The early stages of an economic recovery are often a lot harder for some businesses to negotiate than recessions themselves. Historically, corporate insolvencies increase as the economy exits recession. With corporate insolvencies still low, it may be the case that economic recovery hasn’t taken hold as firmly as it might otherwise appear.”

“Stuttering growth, low interest rates, and creditor forbearance have helped keep corporate insolvencies lower than they normally would have been since the recession. Some businesses will have taken advantage of the extended gap between recession and growth to put their finances back in order, but this won’t be the case for everyone.”

“The economic recovery and any future rise in interest rates is likely to put upward pressure on insolvencies.”