2012 – Not a good year for Insolvency Practitioners

claire_sharp

Claire Sharp

Contrary to expectations, the number of individuals and companies entering into formal insolvency processes have reduced over the course of the recession.

There was a drop of nearly 10%  for personal insolvencies in the first 3 quarters of 2012, with a 6% drop showing for the final quarter. For corporate insolvency, there was a drop of 6.6%

Commentators are suggesting that the reduction for personal insolvency is due to low interest rates (it costs less to pay the interest due on the debt) and relatively high employment rates (you can manage to service those debts if still in work). For corporate insolvency, explanations range from the softer attitudes of the banks and the taxman, to a more complex explanation that the current drop in corporate insolvency is a sign that the economy is in recession and that business conditions are poor. The latter camp suggests that an improving economy and a return to economic growth will see insolvency numbers rise significantly. So?

What some of increasingly suggesting is that a return to economic growth will see interest rates rise, causing that a major catastrophic event to occur, threatening any fragile economic recovery i.e. one without firm roots. No-one is willing to suggest an example event, but given how close some of the banks came to collapse in the early years of the recession, that is certainly one possibility.

One thing is clear; any economic recovery is ironically likely to see insolvency numbers shoot up, partly due to increased interest rates, but also because those debtors will become worth suing again.

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