Company insolvencies at five-year low

Comet store Comet announced on Thursday that it would go into administration next week

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The number of companies going bust in England and Wales has dropped to its lowest level since the end of 2007.

Figures from the Insolvency Service show that 986 firms went into administration, receivership or a company voluntary arrangement in the third quarter of this year.

That was a 25% drop on the previous quarter.

However, personal insolvencies rose slightly, to 28,062, though that was still fewer than a year ago.

Although personal insolvencies increased by 2% from the second quarter of the year, the total was 7.2% lower than year earlier.

'Zombie' businesses

Lee Manning, of R3, the trade body for insolvency experts, said the drop in corporate insolvencies probably reflected the recent revival in the economy, which grew by 1% in the third quarter of the year.

Forms of personal insolvency

  • Bankruptcy: The traditional way of escaping overwhelming debt. Ends after one year, but you are likely to lose all your assets including your house to pay something to the creditors
  • Individual voluntary arrangement (IVA): A deal between you and your creditors, overseen by an insolvency practitioner. Less stigma, less chance of losing your home, but involves paying some of your debts in one go or over a number of years
  • Debt Relief Orders: Introduced in April 2009, these allow people with debts of less than £15,000 and minimal assets or surplus income to write off debts without a full-blown bankruptcy

"Whilst this decrease in corporate insolvencies is to be welcomed, there are many other businesses stagnating - being kept alive by the forbearance of banks, rather than being shut down as they would have been during previous recessions," he said.

"Our research shows 146,000 businesses are in fact 'zombies', whereby at best they are able to pay the interest on their debts but not reduce the debt itself.

"Some of these businesses have been 'running on empty' for quite some time now, and with no reserves left in the tank, they may not be able to carry on for much longer," Mr Manning warned.

Cost barrier

The number of individuals going bust has been on a steady downward trend since the start of 2010.

In that time, the number of bankruptcies has halved, individual voluntary arrangements have been steady, and there has been a surge in the use of the relatively new insolvency procedure known as the debt relief order.

Joanna Elson, chief executive of the Money Advice Trust, said: "There are now more people taking out debt relief orders than there are becoming bankrupt."

"Our experience tells us that the falling bankruptcy figures are not a result of improved household finances, but rather of the increased cost of going bankrupt.

"People struggling with debt often simply can't afford the £700 it costs to go bankrupt, even though that would otherwise be their best option," she said.

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