The consensus view of the economic pundits seems to be that the UK is at last emerging from the longest and deepest recession for decades. By common consent, both business and consumer confidence is certainly improving, but the recovery is fragile, and whether the recovery will be L-shaped, V-shaped, W-shaped or some other shape remains the subject of debate.
So does this mean that Insolvency Practitioners should now pack their bags and go away until the next recession?
Probably not. Past experience has shown that insolvencies, like unemployment, tend to be a lagging indicator, with the peak in business failures not being reached until up to two years after the trough of the slump. Whilst, therefore, there will be significant variations between regions, we expect that the insolvency profession will be busy until well into 2011.
What, then, are our predictions for 2010?
In terms of corporate insolvencies, it would not surprise us to see the number of liquidations exceed 30,000 in 2010. There is no doubt that the number of failures has been held down up to now by factors such as low interest rates, low (or negative) inflation, the temporary reduction in VAT, deferral arrangements with HMRC and, for the automotive industry, the car scrappage scheme. In addition, there is a view that creditors, who have been reluctant to be too aggressive in recovering debts hitherto, may be prompted by signs of economic recovery and rising asset values to start adopting greater vigour.
Broadly speaking, administrations are often more suited to troubled large companies than to smaller entities, and those may have reached a plateau, although we do not expect to see much of a dip until the economy shows signs of sustained growth.
As regards personal insolvencies, we are in the midst of a pandemic. The official figures for 2009 will be published in early February, but we would be surprised if the combined total of bankruptcies, individual voluntary arrangements and debt relief orders was far below 130,000 – a new record by some distance. These figures do not include people in debt management plans, of which there is no register. For 2010 we envisage a further increase as unemployment continues to rise and, if there is a continued improvement in the housing market, mortgage lenders become more aggressive in collecting arrears. Could the number of individual insolvencies reach the nightmare level of 150,000?
As always, we urge businesses and individuals facing financial troubles to seek advice at the earliest possible stage, when there is a better chance of rescue. There are rescue and insolvency procedures available which may stave off complete failure, and save many businesses currently at risk.
IMPORTANT NOTE: This article is intended for general information only. It is not a substitute for specific advice which should be sought for specific cases. We cannot accept responsibility for any action (or decision not to take action) made in reliance on the content of this publication.