Deeper Gloom Predicted For Business And Personal Debt

INSOLVENCY trade body R3 has warned that the economy faces a significant rise in corporate and personal insolvencies over the next 18 months.

Commenting on its latest research, chairman of R3 in South Wales Nigel Boobier said: “The result is a prediction that by the end of 2009, both business and personal insolvencies will rise by 41% and 22% respectively from 2007 insolvency statistics.”

The findings also show a growing trend of unsecured lenders attempting to secure debt against individuals’ homes.

Mr Boobier said: “The predictions of insolvency practitioners in South Wales are very similar to those from across the rest of the UK. However, it seems that so far South Wales has been less badly hit.

“An encouraging sign is that local insolvency practitioners have reported that they are spending a lot of their time in low-key turnaround work, which avoids formal administrations and liquidations.

“This seems to go hand in hand with willingness from many local company directors to take early professional advice to head off trouble while it remains manageable.

“The predicted UK business insolvency figures are catastrophic and unfortunately will mean we will start to approach the numbers we saw at the peak of the last recession in 1992.

“For the last few years a number of businesses that perhaps were not performing well have been kept alive artificially by the easy availability of credit, which has now dried up.”

Respondents anticipated a rise in business insolvencies from the official figure of 13,091 in 2007 to 15,693 for 2008 and 18,440 for 2009, a 41% increase on 2007. This is a conservative estimate as 18% of respondents choose a figure over ‘over 20,000’ as their prediction for 2009.

Mr Boobier said: “By the end of 2009 our members anticipate an increase in personal insolvencies on the 2007 figure, which is also incredibly worrying.

“Traditionally the route into personal insolvency is not an overnight process and unsurprisingly people will put off dealing with financial problems until they have exhausted all other options.”

For 2007, there were 121,796 personal insolvencies, and respondents thought by the end of this year this figure would get to 132,700 but would reach 148,352 by the end of 2009.

The growing trend of unsecured lenders and the practice of “moving up the chain” (an activity banks such as Northern Rock have been practising), coupled with the non-payment of mortgages, have led to the increase in repossession figures.

The survey also indicates that secured lender repossessions will “increase a lot” by the end of 2009, according to 56% of respondents.

Mr Boobier said: “In a tough financial situation, more and more lenders will find themselves with bad debts and only limited routes open to them. This is sadly an inevitable consequence of overlending in a formerly buoyant market.”