Personal insolvencies across the country reach their highest rate in eight years as 'IVAs' mount up


Personal insolvencies across the country reach the highest rate in eight years as ‘IVAs’ mount up

  • Rise in insolvencies driven by rise in Individual Voluntary Arrangements (IVAs)
  • Construction industry had the largest number of company insolvencies 
  • A recent poll found a fifth of people would struggle to pay a £20 bill 

New data has shown that the number of individual insolvencies between July and September was at the highest quarterly level seen for eight years.

Nearly 31,000 people became insolvent in the third quarter this year, which was 23 per cent higher than the same quarter in 2018.

The overwhelming majority of the rise was because of an increase in Individual Voluntary Arrangements (IVAs), which grew by 22 per cent between the third quarters of 2018 and 2019.

Nearly 31,000 people became insolvent in the third quarter this year, which was 23 per cent higher than the same quarter in 2018.

Nearly 31,000 people became insolvent in the third quarter this year, which was 23 per cent higher than the same quarter in 2018.

Duncan Swift, president of the insolvency and restructuring trade association R3, said: ‘Today’s figures provide a worrying insight into the state of personal finances.’

He has also said that a lack of secure employment, sub-par wage growth, and the  current economic and political turbulence all had a major impact on people’s finances.

Business insolvencies increased only slightly in the same quarter, with Thomas Cook being the most high-profile firms to go under, after enduring years of financial strife. 

The fall of Thomas Cook

Starting life just four years after Victoria was crowned Queen, the travel agency Thomas Cook outlived her reign, two world wars and the election of Donald Trump.

But after sustaining massive financial losses, high debts and an outdated business model, the company founded to give train outings to Leicestershire temperance members, went under. 

Businessman Thomas Cook founded the company in Market Harborough, Leicestershire in 1841. His first journey took 485 members of the local temperance movement from Leicester to Loughborough and cost one shilling. 

Problems started to mount in 2007 when the Thomas Cook Group merged with package holiday company MyTravel. The merger was risky. MyTravel has only made a profit in one of the six previous years. 

Worries over the merger did not subside though. It almost went insolvent in 2011, but was bailed out by an RBS-led bank loan. Unfortunately, that just further increased its debts. 

Chinese firm Fosun International bought a stake in the business in 2015. But problems still mounted. A Europe-wide heatwave in 2018, the rise of low-cost airlines like Ryanair and EasyJet, and the decline in the use of travel agents by holidaymakers continued to hurt Thomas Cook.

In August, they began talks with Fosun and its banks over a possible sale. A deal seemed likely, but Thomas Cook were asked by its creditors cough up £200million before the deal went through. The company could not meet the demand and consequently, the 178-year old business closed its doors. 

The number of company insolvencies remains far lower than the total number of personal insolvencies. There were 4,355 business insolvencies in the third quarter, with the construction industry being the most affected sector. 

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Other firms to face insolvency in recent weeks include the jeweller Links of London, and two clothing retailers: Wakefield-based Bonmarche and Karen Millen.

Recent research found that two-thirds of adults would find it hard to pay an emergency £500 bill. Source: R3/ComRes

Recent research found that two-thirds of adults would find it hard to pay an emergency £500 bill. Source: R3/ComRes

The former entered administration three weeks ago with 350 jobs put at risk. Sports Direct owner Mike Ashley and vulture fund Hilco have been touted as potential buyers of the company.

The retail sector has experienced a tough year. Since the end of 2015, retail employment has dropped, while in the last year alone, 85,000 jobs have been slashed. The switch to online shopping has been partly blamed for the slump. 

It’s not just high street chains though. Many Britons would struggle to pay for emergency bills. Recent research from R3 found that without assistance, 20 per cent of adults would find it hard to pay a £20 bill. For £500 bills, the proportion increases to two-thirds.

R3’s President Stuart Frith called the findings ‘a worrying sign that many people do not have any kind of financial cushion to fall back on if needed.’

‘Many people are one unexpected bill away from losing financial stability. A missed payment for a relatively small amount can be the trigger for an escalation in debt that soon becomes impossible to juggle.’

 

        

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