While the number of bankruptcies is down 23% year-on-year, there is a rise in the number of IVAs
Despite this, experts warned that higher levels of debtcould rise in the not too distant future as the number of IVAs rose year-on-year.
The Insolvency Service said 101,049 people had become insolvent during the year, a fall of 7.9% on 2012's figure. The total included 24,536 bankruptcies, 27,546 debt relief order, and 48,967 individual voluntary arrangements.
While the number of bankruptcies and DROs fell by 23% and 12% respectively, the number of IVAs was up 4.9% year-on-year.
The Insolvency Service said 2013 was the third year that the number of bankruptcies had fallen below the number of IVAs.
Figures for the final quarter of the year showed there were 24,282 individual insolvencies; although, despite the fall, insolvency experts warned that the number could quickly start to increase if consumers over-stretched themselves.
David Birne, insolvency partner at the chartered accountants HW Fisher & Company, comments:
"The spectre of business failure may not have been banished, but with Britain's economic lights turned back on, it has at least been forced back into the shadows. Rising demand and resurgent levels of business confidence have combined to drive down levels of company insolvency. Interest rates remain low and banks are still reluctant to enforce penalties on small businesses that fall behind with repayments.
"The huge fall in compulsory liquidations - most of which are instigated by HMRC - suggests that the Revenue continues to cut struggling businesses some slack too.
"With individual insolvencies at an eight-year low, the picture here is more rosy - but more nuanced. Traditional bankruptcies and Debt Relief Orders are both down sharply, but the number of "bankruptcy light" IVAs is up. In part this is due to the less onerous conditions attached to Individual Voluntary Arrangements, but it also hints at improved levels of confidence as both creditors and debtors agree to restructure debts for the long term. But no-one should think that the improving economy will necessarily continue to improve insolvency rates. Sooner or later, interest rates will rise and bank forbearance will end - and when that happens the weaker firms will be in serious trouble.
"These are the best insolvency figures we've seen in a while, but with many of Britain's businesses still just "hanging on", thousands of our weaker firms are far from out of the woods yet."
Melanie Giles, a licensed insolvency practitioner at PJG Recovery, says:
"Debt relief orders continue to push down the bankruptcy numbers but things aren't as rosy in the garden as they seem. For starters, the last three months of the year are usually the quietest and 2013 was no different. It's also important to remember that these figures do not include the many unregulated debt management plans out there.
"Essentially, things aren't as good on the ground as they seem on paper. People's pay packets continue to stagnate while many households are still struggling with legacy debt from pre-2008. Interest rate rises continue to hang over the consumer like the Sword of Damocles. Even if they rise slowly, which they almost certainly will, a lot of households will be pushed over the edge.
"People taking on more debt in order to buy arguably overpriced property is also a real cause for concern. Once again people are betting on the property market and we know what happened last time."
Louise Brittain, Insolvency Partner at Wilkins Kennedy says:
“We know that massive and highly targeted marketing campaigns are attracting more and more individuals into using Debt Management Plans and Pay Day loans as ways to manage their debts.”
“In many cases the arrangements are rolled over from one month to the next, and because of the punitive interest or high, front-loaded fees, very little capital is repaid and the individual’s financial difficulties get worse, not better.”
“However, because these companies are not required to register their schemes, it is difficult to know exactly how big the scale of the problem really is. I am concerned that many people using Debt Management Plans and Pay Day loans will at best eventually end up formally insolvent or at worst taking desperate measures to repay their creditors.”
