Sector and insolvency review winter 2012

Sector and Insolvency Review 2012

2 Sector and Insolvency Review Winter 2012

3Connect to rsmtenon.com

Contents

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This newsletter has been produced by RSM Tenon to provide

an insight into the insolvency market in 2012 – the statistics,

the trends, the sectors at high risk and RSM Tenon’s expert

opinion on what is going to happen in 2013.

Snapshot of 2012

22,332 UK companies entered into an

insolvency process in 2012 (2% drop compared

to 2011).

Since 2009 the average number of

insolvent businesses per quarter is 5,890.

There were 90 corporate insolvencies per

working day in 2012.

210,000 companies are currently at a high

risk of insolvency, an increase of 2.7%

compared to 2011. This equates to 9% of

total companies.

Sector most at risk in 2013: Construction with

3,225 companies.

Sectors showing highest signs of distress:

37% Furniture Manufacturers; 29%

Textile Manufacturers; 23% Printing and

Publishing.

Region with the largest increase in insolvencies

in 2012 compared to 2011 – North East with 15%.

112,807 personal insolvencies in England and

Wales in 2012. 453 people per day in 2012.

Increases to 131,400 if we include Scotland

(estimate) and 528 per working day.

North West had the largest number of personal

insolvencies in England and Wales in 2012

(14,961 in total) but Scotland had over 18,000.

43% of personal insolvencies were an IVA,

which is the same level as 2011.

Our online Tracker system provided the data

for this newsletter. Tracker uses a variety

of data sources including all registered UK

companies, Mortgages and Charges, CCJ’s,

Administration Orders and the Personal

Insolvency register.

To find out more about how Tracker can

support your business, visit:

www.tracker-online.com, email us at

[email protected] or contact us

on 0207 448 7725.

03 Snapshot of 2012

04 Overview by Chris Ratten,

Head of Restructuring

Corporate Insolvency Review

06 Total Insolvencies since 2009

06 Total corporate insolvencies by type

07 Insolvency Procedures at a glance

07 The Top 20 Charge holders

08 The sectors with the highest number

of company failures in 2012

09 Sector Review

11 Sector Trends

11 Total Number of Insolvencies by Region

12 Corporate Insolvency Expectations

for 2013

Sector Insolvency Review

13 Sectors with the highest risk of

insolvency

13 Factors which could cause an increase

in UK Insolvencies In 2013

14 Sector expectation 2013

Personal Insolvency Review

16 Annual Personal Insolvencies

16 Personal Insolvency comparison graph

in England and Wales 2006 - 2012

17 Personal Insolvencies by Age Group in

England and Wales (2012)

18 Personal Insolvencies by Region

19 Scotland Personal Insolvencies

20 Personal Insolvency Expectations

for 2013


Overview

Corporate Insolvencies

There is no denying it, 2012 was a tough year in the restructuring and

insolvency market. At the start of the recession I think most of us

within the profession expected a flood of enquiries from banks and

accountants who had clients showing significant signs of distress.

However, it just didn’t happen. In fact the insolvency market actually

shrank by 17% when compared to 2009 and we don’t expect it to

actually increase again until 2014 and beyond.

The main reasons are, banks and other funders, increasingly conscious

of bad debt and public relation issues are being more lenient and willing

to give companies more time to turn their business around, interest

rates have remained low i.e. unchanged since quarter 2 2008 and

businesses are just doing enough to teeter on the edge and survive

by cost cutting, being cautious and not investing. Despite the lack

of insolvencies, Tracker, our online monitoring system confirms that

over 210,000 businesses at the end of December 2012 were showing

significant signs of financial distress. That’s 9 per cent of total

companies in the UK.

In 2009 the volume of insolvencies was approximately 27,000; however

in 2012 the level was down to 22,000, a drop of 17 per cent during the

three year period. Even though there has been a drop, SMEs should not

become complacent and take their eye off the ball. I think that there

will be no significant economic growth for some time, so it is vital for

businesses to regularly monitor their management information and

react accordingly as the market changes.

It is pleasing to see that in 2012 we received more enquiries from

owners wishing to restructure their business through cost reductions,

improved working capital management and additional funding, so

they put themselves in a better position when the recovery happens.

Our advice following a review can sometimes be complex, but often it

involves some simple and practical common sense cash flow measures,

such as prompt invoicing, timely and effective chasing of those invoices

and even ensuring terms and conditions are clear to customers. Simple

but effective tactics can go a long way to keeping any firm solvent

during these tough times.

When we look at UK exports, the picture wasn’t as rosy as the

Government would have liked during 2012. In fact, British exporters

are having a torrid time battling the headwinds of the slowing Chinese

economy and the Eurozone crisis. Despite the US agreeing to increase

taxes for the wealthy as part of the Fiscal Cliff discussions in January

2013, the delay in spending cuts is only until March, which could slow

their economic progress.

If exporting is to provide the economic boost that the Government

expects, more will have to be done to support SMEs in finding new

markets and provide more guidance on how to export successfully.

Outside London (5,233 insolvencies), the North West had the largest

volume of insolvencies with 3,108 (14 per cent of total corporate

insolvencies) followed by Yorkshire (2,500, 11 per cent) and South East

(2419, 11 per cent).

There have been no significant surprises as to the sectors experiencing

the highest failure rates. Business Services represented 25 per cent,

Construction 17 per cent, Hospitality and Leisure 9 per cent, Public

Services 8 per cent, Property 8 per cent and Retail 7 per cent.

Personal Insolvencies

The volume of personal insolvencies in 2012 only reached 112,000

proving that this insolvency market is still witnessing a downward

trend. Last year was the lowest figure since 2008 (106,000) and 7 per

cent lower than 2011 (119,941). Both quarter 2 and 4 in 2012 (27,390 and

27,948 respectively) were the lowest quarters since quarter 3 2008

(27,448) and bankruptcies were the lowest they have been since quarter

4 2003 (6,940).

The most popular solution continues to be an Individual Voluntary

Arrangement in England and Wales with 43 per cent of total personal

insolvencies. However, when reviewing the personal insolvency

solutions against the figures, both Individual Voluntary Arrangements

and Bankruptcies have reduced compared to the same period in 2011, a

decline of 2 per cent and 23 per cent respectively. Debt Relief Orders,

an insolvency solution for people with low levels of debt, actually

increased by 9 per cent from 29,016 in 2011 to 31,699 in 2012.

The regions with the largest number of personal insolvencies when

reviewing the figures as a whole in 2012 were Scotland (15 per cent),

North West (12 per cent), South East (11 per cent) and South West (10 per

cent). When reviewing the age of people who are becoming insolvent, 30

per cent in 2012 are in the 36-45 age group. This group accounts for 30

per cent of bankruptcies, 23 per cent of Debt Relief Orders and 33 per

cent of Individual Voluntary Arrangements. The only age group which

is higher for any insolvency solution is the 26-35 age group for Debt

Relief Orders which might be the result of younger people researching

into managing debt earlier and putting a strategy in place before their

financial position becomes much worse.


Chris Ratten, Head of Restructuring

M 07800 617398

E [email protected]

The road ahead - 2013

It is difficult to predict 2013 as there are so

many factors that will affect the outcome

such as; the Eurozone, exports to growing

economies, changes in interest rates and

general discretionary spending to name just

a few. At best, there will be minimal growth

and at worst there will be another recession.

I expect the economy will flat line in 2013

with a steady flow of insolvencies from the

zombie businesses* that have just managed

to keep their heads above water over recent

years. The volume of personal insolvencies is

expected to reduce further and I think they

will only reach approximately 100,000 by the

end of this year.

In conclusion, it is clear that the recovery

remains weak and many businesses and

people remain cautious. The recent failures

of Comet, HMV, Jessops and Blockbuster are

prime examples of why businesses must be

cautious, plan ahead and also adapt with

the market. Businesses cannot just hope for

busier times. In 2013, we can only hope for a

glimmer of economic growth later in the year.

RSM Tenon has the experience and expertise to provide a

range of solutions to all stakeholders from providing finance

and turnaround advice through to a managed exit.

For more information on any of the data covered in this

review, our services or to discuss a client in distress please

contact me or your usual RSM Tenon contact.

*What is a zombie business?

A company which is at high risk and nearing the point of insolvency but is still able to hang on, neither failing nor thriving.

The zombie signs:

n Just being able to pay the interest on debts, but not reduce the debt itself

n In the event of a rise in interest rates, the business will be unable to pay its debt at all

n Currently struggling to pay its debts when they fall due

n Having to negotiate payment terms with suppliers


Total Insolvencies since 2009


8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0

7,175

6,98

8

6,70

1

6,01

8

6,08

2

5,81

0

5,57

2

4,76

4

5,80

7

5,47

1

6,05

1

5,47

1

6,13

0

5,86

8

4,97

9

5,35

5

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2009 2010 2011 2012

Total corporate insolvencies by type

Scotland statistics included and sourced from the Insolvency Service.

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2006 2007 2008 2009 2010 2011 2012

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0

Compulsory Liquidations

CVL’s

Receivership Appointments

Administration

Company Voluntary Arrangements


Most Recent Chargeholder Admin Orders Liquidations Receiverships Grand Total

National Westminster Bank PLC 141 890 2 1,033

Lloyds Banking Group 228 704 18 950

HSBC Bank PLC 145 665 0 810

Barclays Bank PLC 132 645 3 780

The Royal Bank of Scotland PLC 101 359 7 467

Bibby Financial Services Limited 114 326 0 440

Lloyds TSB Commercial Finance Limited 55 329 1 385

Clydesdale Bank PLC 92 202 4 298

RBS Invoice Finance Limited 30 135 0 165

Midland Bank PLC 16 104 1 121

Aldermore Bank PLC 32 85 0 117

AIB Group (UK) PLC 30 62 5 97

Santander (UK) PLC 24 40 0 64

Close Invoice Finance Limited 23 35 0 58

RBS Group 12 43 1 56

Bank of Ireland 20 25 1 46

ABN Amro Commercial Finance 14 31 0 45

Northern Bank Limited 12 28 3 43

HSBC Invoice Finance (UK) Limited 11 28 0 39

SME INvoice Finance 17 22 0 39

Others 860 2,032 24 2,916

No Charge 374 11,021 2 11,397

Grand Total 2,483 17,811 72 20,366

Insolvency Procedures at a glance

In order of severity – least to most

1. Company Voluntary Arrangements (“CVA”)

A CVA is a legally binding agreement between a business and the people it owes money to. It is a highly

flexible and powerful tool, typically involving a 3 year plan to repay a proportion of the debt owed.

2. Administration

Administration provides a business with Court protection and places it under the control of a

licensed Insolvency Practitioner. An Administrator’s objectives are to rescue the company as a

going concern, achieve a better result for creditors compared to liquidation or to realise property

to pay the funders and/or preferential creditors (typically employees).

3. Receivership

In certain circumstances a lender may be able to appoint a Receiver to sell the business’s assets

to repay the amount owed.

4. Creditors’ Voluntary Liquidation

If a business is no longer viable, the directors and shareholders can close the business and deal

with its debts by placing it into liquidation. A Liquidator would be appointed with the role of

selling or collecting in the assets and distributing the funds to the relevant parties. A Liquidator

must be a licensed Insolvency Practitioner.

5. Compulsory Liquidation

An application to Court can be made, typically by a creditor, for the liquidation of a company.

The process can take a long time to complete, but as soon as the matter is advertised in the

London Gazette the bank account of the business will normally be frozen. If the Court agrees that

a Liquidator should be appointed, the Official Receiver or Insolvency Practitioner (in Scotland)

initially takes control of the business, closes it down and its assets are sold.

The Top 20 Charge holders


The sectors with the highest number of company failures in 2012

The above bar chart is the sector insolvency breakdown for England and Wales. These sectors

represent 84% of corporate insolvencies in 2012.

Note: The above chart does not include Scotland

Business Services includes: Renting of machinery/equipment; Management Activities; Public

Relations; Design Services; Packaging Activities; Legal and Book keeping services; IT Consultancy;

Repair of Goods and Industrial Cleaning.


0 1,000 2,000 3,000 4,000 5,000 6,000

Business Services

Construction

Hospitality and Tourism

Public Services

Property

Retail

Wholesale

Vehicle Manufacturers and Distributors

Transport Services

Engineering Manufacturers

5,223

3,452

1,812

1,595

1,596

1,393

848

612

500

441


Sector 2012 insolvencies compared to 2011

Commentary

Retail Same There were approx. 1,330 corporate insolvencies in the retail sector during 2012 (the same as in

2011) however there was an increase in well-known names such as JJB Sports, Comet, Clinton

Cards, Jessops, HMV and Blockbuster to name just a few. According to the British Retail Consortium

(BRC), more than one in ten shops are empty with the worst regions being in Wales, the North

and Yorkshire where approx. 15 per cent of premises are empty. Many are still fighting low footfall

figures, stagnating sales and rising costs. It will be interesting to see the first quarter’s retail

insolvency numbers in 2013 after the significant discounts of approximately 70 per cent by some

retailers in the run up to Christmas and the New Year sales.

Construction Same Even though there are plenty of cranes in the skyline in London, the construction sector outside

the capital is dead. Commercial building, the lifeblood of most large firms, has failed to recover

from the financial crisis. It is clear to see that many projects are still on drawing board and

being stalled. Civil engineering has suffered from a lack of infrastructure improvements after

nearly a £30bn cut in public investment. However, the levels of insolvencies have remained very

similar in both 2011 and 2012.

Manufacturing Up Industrial output was at its lowest level since May 1992 in December 2012 and manufacturing

was 20 per cent down on its peak. The domestic market continues to be a challenging one

and the balance of payments on export sales have turned negative for the first time since

the 2008/09 recession. Companies that have a high degree of exposure to European markets

were particularly hard hit during 2012. The sub sector with the largest increase in the number

of insolvencies was Pharmaceutical, Medical and Toiletries (Up 45 per cent followed by

‘Other Manufacturing’ with 28 per cent). However, electronic and technology and engineering

manufacturers actually dropped compared to 2011, 15 and 13 per cent respectively.

Hospitality

and Leisure

Up 6% Consumer confidence and spending continues to fall as more people are being cautious and

controlling their budgets/spending, which has had a detrimental impact on this sector. Pubs and

other leisure related businesses are suffering most due to the drop in discretionary spending.

Even though there has been a slow recovery in tourist numbers due to the Olympics and other

sporting events, as a whole the sector outside London is on a knife edge.

Business

Services

Down 8% Despite the volume of insolvencies reducing in 2012 compared to 2011, this sector is still in

a precarious position. Companies are trying to reduce their spend on external suppliers,

impacting significantly on marketing, book keeping PR and IT firms. Over 45,000 companies in

this sector are currently at high risk (7%) but this is still lower than the average which shows

many business service businesses were lost in between 2008 - 11. Approx. 5,200 business

service companies were subject to insolvency proceedings during 2012.

Professional

Services

Same Many professional service businesses are extending their service range to include more consultancy

advice to support their core services. The market is demanding more support to ensure their survival

in the current times. Therefore, professional service firms must become as efficient as possible by

delivering the best bespoke service but at the lowest cost to the firm. In 2012, the fee income for the

top 50 accountancy firms actually increased 1.5% in real terms.

Sector Insolvency Review (2012)



Commentary

Agriculture Down 8% The adverse weather during 2012 made for a poor harvest and as a result the the agriculture sector

was adversely affected. Low domestic crop yields combined with a severe drought in the US have

contributed to increasing commodity prices that have partially offset arable agricultural sector

losses. However these prices have had a knock on effect throughout the food chain ultimately

resulting in increasing food prices for the consumer. Due to its reliance on this sector, Scotland’s

agriculture and agrifood sector was particularly affected but overall the volume of insolvencies

dropped compared to 2011.

Transport Down 12% For the majority of 2012, the price of fuel was a constant and major cost pressure in the

Transport sector. In December 2012, unleaded fuel was 2.75p a litre more than in December 2011*

which highlights the cost pressure this sector has.

Wholesale Down 15% There were 848 insolvent businesses in the wholesale sector during 2012, accounting for 1.3

per cent of companies within this sector. However, the number of businesses showing signs

of distress has increased by 2,647 when compared to 2011. Therefore, there is potential for an

upsurge in insolvencies in the latter half of 2013 as pressure mounts on them.

Finance Up 12% 253 Financial Services businesses entered into an insolvency process during 2012 which is a

32% decline when compared against 2009. Of the 41,000 businesses in this sector, over 4,800

businesses are showing signs of significant distress. Despite many companies in this sector being

hit in 2008-09, the sector still struggled to maintain service levels and is expected to continue to

struggle as clients demand more advisory services with limited uplift in costs.


Business Services includes: Renting of machinery/equipment; Management Activities; Public Relations; Design Services;

Packaging Activities; Legal and Book keeping services; IT Consultancy; Repair of Goods and Industrial Cleaning.*According to the AA - www.theaa.com/motoring_advice/fuel/

Business Services had the largest number of insolvencies in 2012 representing 23% of all insolvencies nationally. Despite being 8% lower than 2011.

Sector Insolvency Review (2012)


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East Midlands

East of England

London

North East

North West

Scotland

South East

South West

Wales

West Midlands

Yorkshire and The Humber

Sector Trends

Total Number of Insolvencies by Region

1,800

1,600

1,400

1,200

1,000

800

600

400

200

0

2009 2010 2011 2012

Business Services

Construction

Engineering Manufacturers

Hospitality and Tourism

Property

Public Services

Retail

Transport Services

Vehicle Manufacturers and Distributors

Wholesales

*The source of the Scottish figures is Accountant in Bankruptcy website

810

1,343

1,372

5,233

2,500

3,1081,379

2,419

1,354

545

2,075



Expectations for 2013

According to RSM Tenon’s Tracker system 210,002 (December

2012), approximately 9 per cent of companies nationally were

showing signs of distress and significant financial issues. This

is a rise of 2.7 per cent compared to December 2011. Therefore,

despite the decreasing volume of insolvencies, the number of

businesses teetering on the edge is actually increasing.

Due to low interest rates, many business owners are just able to service the costs of their debts;

however, we expect demand for external finance to increase for a number of companies in the next

year. It is expected that only medium to large sized businesses are likely to apply for more funding,

as smaller businesses (under a turnover of £3m) will focus on debt reduction and maintaining their

cash flow.

The Chancellor’s Autumn Statement focused on measures that will support investment and exports.

£13 million of funding has been awarded by the Government to help 10,000 more British firms export.

The funds will go to UK Trade & Investment (UKTI) to help more companies make contacts and sell

to overseas markets. The majority of the investment – up to £9 million – will go directly towards

boosting trade opportunities for SMEs. In addition, £2.5 million will be invested in helping firms

access and win some of the many high-value opportunities that UKTI has identified globally. Over

half of the monetary value of the UK’s exports comes from SMEs. The new investment comes as part

of a drive by the Government to boost exports for UK firms and achieve its ambitions to double UK

exports to £1 trillion by 2020 and get 100,000 more companies exporting.

Despite the actions by the Government, RSM Tenon’s business barometer survey which interviewed

500 business owners in December 2012 on various topics, found that nearly 60 per cent of SME’s

surveyed thought the Government was failing to help them to export. The most worrying statistic

from the survey was that more than half of smaller businesses who could export goods have not

even considered exporting despite the Government’s efforts to support and encourage it.

The machine at the heart of the Eurozone is spluttering; the Bundesbank has sliced more than

one percentage point off its forecast for economic expansion in Germany in 2013, reflecting the

severe after effects of the sovereign debt crisis. This shows Germany is no longer immune from the

downturn and it saw its industrial and manufacturing performance falling dramatically at the end

of 2012. Without a confident or expansive Germany, it is almost certain the Eurozone’s double dip

recession will continue in 2013, dragged down by severe contractions in the southern states.

Over 50 per cent of the UK’s export trade is to European countries, so with their current difficulties,

exporting may not grow as quickly as the Government would like. Therefore, the Government needs

to also focus on emerging economies in Asia, Africa and South America.

2013 will be another challenging year as the Eurozone is unlikely to offer little in the way of growth

opportunities and some even fear a global slowdown. Only those businesses that can innovate, offer

new products and compete in faster growing markets and diversify into global supply chains will be

successful.

Overall 2013 will be very similar to 2012 in terms of insolvency, much lower than expected despite the

weak economy due to low interest rates, bank and funder leniency and the ability of some high risk

businesses to teeter on the edge.


Using RSM Tenon’s Tracker system, the chart below shows the volume of businesses within each

sector that are deemed to be at high risk.

Sectors with the highest risk of insolvency (over 3,000 businesses)

The above highlights the fact that the sectors which are dependent on discretionary spending or are

dependent on Public Sector or Government contracts are the ones which are struggling the most.

When looking at the sectors with the largest percentage of businesses at high risk of insolvency,

the figures change to: Furniture Manufacturers (37%); Textile Manufacturers (30%); Publishing

and Printing (23%); Construction (22%) and Food and Drink Manufacturers (22%). However, these

should be looked at with caution due to the number of businesses within each sector.

Factors which could cause an increase in UK Insolvencies In 2013

n Lower discretionary spending from frozen wages, increase in retail price inflation and under

employment

n Increased level of unemployment

n Actions by the US or other European countries could cause an impact on UK trade

n Increase in interest rates – but this is very unlikely!

n Businesses that are dependent on exports into Europe but are hit by new occurrences in the

Eurozone

n Private sector not developing commercial buildings or cancelling plans for new

developments especially retail parks

50,000

45,000

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

0

Busi

ness

Ser

vice

s

Cons

truc

tion

Hosp

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m

Publ

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Prop

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Reta

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Who

lesa

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Tran

spor

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vice

s

Vehi

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Manu

fact

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s and

Dist

ribut

ors

Publ

ishi

ng a

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rintin

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Fina

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Com

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Othe

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Sector 2013 expectation Commentary

Retail Same The average number of insolvencies in the retail sector has been approx. 1,400 per year since 2009

and we expect this to continue. The loss of some high profile retailers is set to continue in 2013 as

consumer confidence remains fragile and discretionary spending is low on the high street. Even

with lower inflation – consumers seem to prefer to pay down existing debt or save rather than

spend. 2012 Christmas trading appears to have been reasonable, though not spectacular and not

enough to prevent insolvencies in the first quarter of 2013. The rise in cheaper internet suppliers

and online/mobile sales is also having a detrimental effect on retailers especially if they cannot

compete on price or do not have a successful online presence. Retailers must be able to compete

across all channels.

Construction Up The construction sector will find it tough in 2013 as the true effect of the Public Sector cuts

become apparent. The pressure will be eased if planned public sector projects start, or if the

private sector creates some new opportunities. The hopes of the construction recovery lie with

the private sector, notably housing, commercial and industrial.

The main forecasting bodies (CPA and Experian) both believe there will be marginal growth in

2013, which could create approx. 3% growth in 2014-15. One notable change in 2012 which will

continue in 2013 is the move by the larger contractors towards smaller projects in order to fill

capacity. This will cause smaller contractors to struggle further and we expect more to fail.

Manufacturing Up Forecast growth in manufacturing output for 2013 halved from 1.5% to 0.7%. The sector

witnessed a further weakening in output and orders at the end of 2012, proving tough trading

conditions will linger in 2013.

Hospitality and

Leisure

Up Whilst London had a bumper year outperforming the other regions in 2012, 2013 will be a different

story. We expect to see a ‘post Olympics’ dip which is likely to be amplified in the hotel market

where capacity had been increased to cover the volume of visitors.

Generally, consumer spending will remain subdued and Sterling’s weakness will reduce the

affordability of overseas travel. However, domestic leisure and tourism operators should provide

some positive growth.

Business Services Same This sector has averaged around 1,380 insolvencies a quarter since 2009. (Peak was 1,622 in

quarter 2 2009). We expect that this sector will continue to struggle as they are exposed to

sectors that are seeing particular difficulties themselves, so are cutting their cloth to stay

afloat. Niche players in difficult markets will need to seek alternative sources of revenue to

spread the risk.

Professional

Services

Up Despite there being some improvement in trading for professional services firms over the last two

years, we feel the expected hard times and downturn in 2013 will have a negative impact on firms

in this sector. Fiscal tightening will pose a significant challenge to numerous professional firms

for which public sector demand is a key source of income. The changing and complex regulatory

environment and shift in emerging markets will represent longer-term challenges and opportunities

for legal and audit firms. Property and construction professionals have little to cheer about in 2013

due to the subdued housing and commercial property market conditions..


Sector expectation 2013



Commentary

Agriculture Up marginally Those in agriculture and agrifood will be praying for some good weather in 2013 to ensure they

do not have another challenging year. The need to be able to harvest good quality crops and

have wider margins on livestock will be make or break for many this year.

Transport Same Thankfully there is some hope for hauliers and road related public transport in 2013 as the

planned 3p tax rise on fuel was cancelled by the Chancellor in December 2012. However,

activity in the overall transport sector will continue to be slow and will continue to be so

in the short-medium term whilst the Government’s austerity measures are in place and the

economic growth is weak.

Wholesale Up Many sectors are experiencing price squeezes resulting in lower margins available for

those throughout the supply chain. The fight between producer and consumer over pricing

combined with extended credit is likely to place increasing pressures on intermediaries.

Finance Up As over 10 per cent of businesses are still showing signs of financial distress, it is likely more

will falter during 2013. The constant changes in the market as well increased regulation,

squeezing margins and competition in insurance services is proving far too hard for some.

Business Services includes: Renting of machinery/equipment; Management Activities; Public Relations; Design Services; Packaging Activities; Legal and Book keeping services; IT Consultancy; Repair of Goods and Industrial Cleaning.


Annual Personal Insolvencies(Includes both Scotland, England and Wales for completeness).

From the peak in personal insolvencies in 2009 when nearly 160,000 people entered into an

insolvency arrangement, the volume has steadily decreased in 11 out of the last 12 quarters to

just under 130,000 in 2012.

In England and Wales, IVAs represented 41 per cent of the market in 2012 followed by Debt Relief

Orders (29 per cent) and then Bankruptcies (30 per cent). In total there were approximately

112,000 personal insolvencies with 48 per cent being women. Both women and men prefer to use

an IVA, but out of the other options, men prefer to choose a bankruptcy rather than a Debt Relief

Order which may be down to the higher levels of debt they have.

Personal Insolvency comparison graph in England and Wales 2006 - 2012

25,000

20,000

15,000

10,000

5,000

0

Bankruptcy

Debt Relief Orders

IVA’s

Q1 Q3

2006

Q1 Q3

2007

Q1 Q3

2008

Q1 Q3

2009

Q1 Q3

2010

Q1 Q3

2011

Q1 Q3

2012


180,000

160,000

140,000

120,000

100,000

80,000

60,000

40,000

20,000

0

2006 2007 2008 2009 2010 2011 2012


Personal Insolvencies by Age Group in England and Wales (2012)

In 2012, the 36-45 age group had the most personal insolvencies with nearly 32,000 people.

Approximately 15,000 people of this age group used an IVA solution with bankruptcies

representing 9,800 and Debt Relief Orders 7,400. The 46-55 age group had the second largest

number of personal insolvencies with over 26,000 followed closely by the 26-35 age group

with 25,400.

Bankruptcy

Debt Relief Orders

IVA

Bankruptcies have had a marked drop from over 20,000 in quarter 1 2009 to just 7000 in quarter 4 2012. In fact, bankruptcies were actually overtaken by Debt Relief Orders for the first time in quarter 3 in 2012.

18,000

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0 18 - 25 26 - 35 36 - 45 46 - 55 56 - 65 66+


Personal Insolvencies by Region

Scotland

18,600 insolvencies (est.)

Position: 1st

14.8% of total

insolvencies

North East

6,625 insolvencies

Position: 10th

5.3 per cent of total

insolvencies

Yorkshire and

the Humber

11,062 insolvencies

Position: 5th


insolvenciesEast Midlands

9,400 insolvencies

Position: 7th


insolvencies

East of England

10,845 insolvencies

Position: 5th


insolvencies

South East

14,374 insolvencies

Position: 3rd

11 per cent of total

insolvencies

London

9,244 insolvencies

Position: 9th


insolvencies

Wales

6,484 insolvencies

Position 11th


insolvencies

West Midlands

10,837 insolvencies

Position: 7th


insolvencies

North West

14,961 insolvencies

Position: 2nd


insolvencies

South West

12,531 insolvencies

Position: 4th


insolvencies

Note: Position refers to the volume of insolvencies compared to the rest of the UK

An IVA in Scotland is a Trust Deed and a Bankruptcy is a Sequestration.



Scotland Personal Insolvencies

Source – Accountant in Bankruptcy (AIB).

On 1 April 2008, Part 1 of the Bankruptcy and Diligence etc. (Scotland) Act 2007 came into force making significant changes

to some aspects of bankruptcy, debt relief and debt enforcement in Scotland. This included the introduction of the new

route into bankruptcy for people with low income and low assets (LILA).

Sequestrations sat around the 11,000 level in 2012 which is much lower than the peak in 2009

(over 14,000). The change in legislation in 2008 obviously had an impact in the number of people

entering an insolvency arrangement as it allowed more people with low incomes and low assets

(LILA) to enter into an insolvency arrangement. The graph above highlights the impact this

legislation made with the large increase from approximately 1500 at the end of 2007 to over

4000 by quarter 3 2008.

Note: Position refers to the volume of insolvencies compared to the rest of the UK

An IVA in Scotland is a Trust Deed and a Bankruptcy is a Sequestration.

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0Q1 Q3

2005

Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3

2006 2007 20062008 2009 2010 2011 2012

Sequestrations excluding LILA

Total sequestrations

Protected Trust Deeds


Expectations for 2013

Talk of double dip recessions, uncertainty on the high streets and

less cash in our wallets are all signs of the times, however, another

is the consistent levels of personal insolvencies with approximately

25,000 to 28,000 every quarter during 2012. This level of

insolvencies is set to continue in 2013 which is by no means close to

the levels we hit in 2009 (approximately 160,000 or nearly 40,000

per quarter).

Before an insolvency procedure is arranged, an individual can sign up for a Debt Management

Plan (Debt Arrangement Scheme in Scotland) to help them arrange their finances to avoid their

debts spiralling further. However, a lot of people in the last two years have taken a DMP only to

be moved to an IVA once they have proven their ability to meet regular monthly commitments to

their creditors.

Individual Voluntary Arrangements which usually require the individual to pay creditors over a

five year period decreased by 8 per cent in 2012 compared to 2011, which shows that people are

less confident about their long term employment prospects. If people lack confidence or are miss

sold Debt Management Plans, IVAs will continue to fall. However, due to their very nature, i.e.

being dependent on how confident people feel, 2013 is likely to see peaks and troughs and

we expect by the end of the year IVAs to remain around the 40,000 level.

Debt Relief Orders surpassed bankruptcies for the first time in 2012, not signalling the end of

bankruptcy, but proving that more people are becoming desperate with debts of less than

£15,000, a sum which may seem low to many commentators but which is a mountain of stress

for those with no means to pay it. DROs will continue at these record levels this year, overtaking

bankruptcies as they continue to decline, but we do not think they will materially increase.

Bankruptcies will continue to trickle downwards in 2013, due to relatively low levels of full (as

opposed to part time) unemployment, very low interest rates continuing to underpin home

owners, lack of new credit (so no new over spenders) and increasing use of Debt Management

Plans/Debt Arrangement Schemes.

More and more people will be on a tight budget in 2013 and for those with high debts, they will

be hoping for creditors’ forbearance. The introduction of the Universal Credit will also amplify

the problems for people on low incomes. Those who live in low income areas, where many are

on benefit, will now be expected to contribute towards Council Tax from their household budget

where in 2012, Council Tax was previously covered by benefit payments. This small step will

exacerbate problems for many.

In conclusion, despite the reducing levels of personal insolvencies in 2012, millions of people

are still carrying debts taken on before the credit crunch, struggling to balance their monthly

household budgets. In the last few years, the low interest rates have helped homeowners

but provided no clear way out. Therefore, consumer debt levels are not reducing – in many

households they sit there, the elephant in the room, stopping families getting on with their lives.



Contact us

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E [email protected]

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Our online Tracker system provided the data

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of data sources including all registered UK

companies, Mortgages and Charges, CCJ’s,

Administration Orders and the IVA and

Bankruptcy register.

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Sector and insolvency review winter 2012

Business

Transcript of Sector and insolvency review winter 2012