“R3’s research found a nearly a third (30%) of businesses admit to regularly using their maximum overdraft facility already. Lower consumer discretionary spend and high utility costs are creating many highly leveraged businesses, only able to service the interest on their debt. A high interest loan would therefore seem inadvisable and we would certainly caution company directors from signing personal guarantees, without first seeking independent legal advice.

“We saw evidence in the personal insolvency market of customers going for more than one payday loan a year or rolling them over and this could be replicated by struggling businesses.

“We would urge any business that is worried about its long term viability to consider all of their options or seek the advice of a regulated restructuring professional.”

Submitted by R3

“R3 welcomes the OFT’s revised Debt Management Guidelines for businesses offering debt management advice or credit repair services, but believes more should be done to ensure Debt Management Plans are properly regulated.

“Research by R3 has shown that 35% of individuals in a Debt Management Plan (DMP) said other options for dealing with their debt, such as an Individual Voluntary Arrangement (IVA) or bankruptcy were not discussed with them before they started their DMP.

“The research also found a significant proportion of those in a DMP ended up in an IVA obankruptcy anyway – thereby prolonging financial distress.

“While DMPs can play an important role in offering a manageable solution to individuals who are able to pay back their debts there is more to be done. Crucially, we need to know how many people are in a DMP. Recent research by R3 revealed that over 2 million said they were currently in a DMP.

“Difficult economic conditions are leading to more people struggling and indeed recent research by R3 has found that 39% of respondents are concerned about their current level of debt – this equates to 18 million people. What is even more worrying is that 25% of people do not think it is clear where to go for impartial, good debt advice. Some clarity is urgently needed in this area as an online search for debt advice could easily lead to a provider with a vested interested in ‘selling’ a particular product.

“We have seen huge numbers of personal insolvencies in 2011 and so undoubtedly more people will find themselves in need of advice. For this reason we are pleased that steps have been taken to further regulate the debt management market but feel that more can be done. There needs to be an official record of how many people are in DMPs so we have an accurate picture of the current personal debt landscape.”

Submitted by R3

R3’s research also shows that of those sampled who had taken a payday loan, 60% regret the decision and 48% believe the loan has made their financial situation worse.  Only 13% believe their payday loan had a positive impact on their finances.

Frances Coulson, R3 President commented:

“Payday loans are not the best way to resolve debt struggles.  We know that many who take them out find them to be a negative experience, often escalating financial troubles.”

A new group of ‘zombie’ debtors – who currently pay only the interest charges on their debt and not the debt itself – has also been identified by R3’s research. One in six individuals are only able to pay the interest on their debt rather than paying off the debt itself.  This breaks down into 11% who are only servicing debt on their credit cards, and 9% who are only paying the interest charges on their overdraft.

Frances Coulson continues:

“We hear talk of ‘zombie’ businesses, but seeing individuals run their finances in the same way is troubling. ‘Hanging on’ each month simply cannot be maintained forever. This group will have very few options should interest rates rise or their circumstances change.”

The highest ever levels of concern over debt were recorded in this quarter’s Personal Debt Snapshot run by R3, with nearly two thirds (60%) of individuals worried about their debt levels. This is up 13 percentage points on July’s figure and 21 percentage points up on this time last year. In London this figure rises to 67%, but peaks at 70% in the North East where concern is at its highest.

As debt concern rises, R3’s research reveals that saving is at a low.  The number of individuals with no savings at all has risen sharply from 19% last quarter to 27% this quarter. Overall, 40% of the population is saving less at the moment than usual, compared to 27% of the population a year ago.

“Having a financial buffer is crucial to weathering periods of difficulty.  If struggling to payday becomes a regular occurrence, seeking financial advice should be a priority over short term high interest credit.” concluded Frances Coulson.

Submitted by R3

Ever since the relaunch of InsolPro in May 2011 we have been able to track every single job application on the website.   All applications go directly to the recruiter advertising the vacancy and we do not get involved in the recruitment process but we are able to count the number of applications for each position.

InsolPro has always been a free service to job seekers and we a not looking to change this.  The average applications per job since the relaunch is 5 which is pretty impressive given that the Insolvency Industry is a very niche market.

We would like to take this opportunity to thank all of the recruiters who have advertised on InsolPro in the past year and we look forward to more jobs and applications in 2012.

To advertise your jobs on a ‘no application no fee’ basis on InsolPro please contact us using the contact form.

“It can only be an encouraging sign that personal insolvency has decreased, but this is likely to come as a surprise for many, given the current economic uncertainty. These figures indicate the peak in personal insolvency occurred in early 2010 but it would be unwise to rule out further increases to come. Interestingly IVA and DRO numbers have increased slightly, as alternatives to bankruptcy.

“These figures do not give us the full picture as the vastly growing Debt Management Plan market (estimated at 500,000 individuals) is not counted, nor do statistics indicate the number of individuals struggling without help.

“If inflation continues to rise and wages remain stagnant we may see a rise in personal insolvencies. Higher energy prices are likely to bite in the coming months as households receive their first bill since the recent hike. As always, Christmas spending will also be another crunch time for households.”

Corporate Insolvency stays level

“A flattening in corporate insolvency comes after the latest 0.5% growth figures, however, indications suggest that it will be a slow, sluggish recovery that is likely to take between three and five years, and these insolvency figures are still higher than twelve months ago.

“Insolvency numbers remain historically low compared to the levels seen after previous recessions, this is largely a result of the value of business assets currently too low for creditors to pursue – they simply will not cover the debts they are owed. Consequently businesses are being allowed to stay afloat albeit as a ‘zombie’ enterprises. When the economy begins to enjoy a period of sustained growth we are likely to see creditors being more aggressive in their pursuit of debtors.”

“R3’s Business Distress Index revealed over four in ten businesses (43%) are experiencing decreased profits. While current stresses may not be enough to push businesses over the edge, a prolonged period of distress will trigger an increase in formal insolvencies. The first few years after a recession are traditionally difficult as it will take some time for businesses to sufficiently rebuild their reserves to support expansion.”

Submitted by R3

The numbers of IVAs and debt relief orders have slightly increased since the last quarter but bankruptcies have decreased from 11,113 in the second quarter to 9,567 in the September quarter. This is likely to be due to individuals unable to afford the £750 to make themselves bankrupt.

Bev Budsworth, managing director of multi award-winning debt management company, The Debt Advisor, commented: “Levels of personal insolvencies are not as high as last year but we are still seeing over 330 people a day being declared insolvent or bankrupt. The real change that we are seeing is the demographics of the people that are finding themselves with levels of serious debt – we are seeing a strong increase in the ‘impoverished middle classes’ coming to us for help as the situation becomes more and more desperate!”

Debt stereotype

“The days are long gone when it was the lower social classes who ran up debts, nowadays all people from all walks of life are suffering.

“More and more ‘well to do’ people are breaking the debt stereotype by not being able to keep paying off their debts, which historically, wasn’t an issue

“Ten years ago, these people were still spending but unemployment, record inflation, negative equity and a whole host of other weak economic factors has meant that their ability to service this high spending lifestyle has been severely diminished.

A recent report entitled ‘Facing the Squeeze 2011’, commissioned by the Money Advice Trust, split debtors into three groups: those who were managing, those who were stretched and those who were overindebted. The report concluded that, due to drops in income and the broad perception of rising living costs, respondents felt that they were still spending a similar amount to a year before, despite making cut-backs.

Bev added: “This is a common scenario for us. More and more people who once were managing to service their debt are now really feeling the pinch and starting to slip into the debt trap. Like swans on a lake these relatively affluent people appear calm and serene on the surface, but underneath they are frantic with the stress caused by severe debt.

Throwing caution to the wind

Bev’s comments come at a time of record inflation at 5.2% and a 17-year high in the level of unemployment at 8.2%. She continued: “The situation is even more dire when you consider youth unemployment. Over one in five 16 to 24-year-olds – nearly one million young people – are out of work and financially dependent upon their parents.

“This compounds the problem further with parents who are nearly reaching their financial tipping point and fearful for their own jobs, forced into debt because they are forced to support to their unemployed children.

“People are definitely now throwing caution to the wind – we are seeing people on middle incomes using credit cards simply to pay for day-to-day living expenses. In more extreme cases, clients are using their plastic to pay their mortgage! Further down the ‘ladder’, the use of payday loans, log book loans and even loan sharks are commonplace.”

Not spending

“Understandably people are watching the pennies and the economic uncertainty and record high inflation is forcing them not spending unless it’s absolutely necessary. Unfortunately, this is only going to make the slowdown worse. What we really need is more money flowing through the economy if we are to turn ourselves around.

We need to be spending but only within our means. We all need to set a budget as to what we can reasonably afford and stick to it. We should be sensible and cut back where we can but we don’t need to do without all of life’s little luxuries – it’s a question of balance.”

According to recent Credit Action figures, total UK personal debt stood at over £1,451bn, with the average adult owing nearly £30k, inclusive of mortgage, or 122% of their average earnings. The average UK household debt is nearly £56k inclusive of mortgage but according to The Office for Budget Responsibility (OBR), household debt will total £2,126bn by the end of 2015 with the average household owing nearly £82k.

Corporate woes

Corporate insolvencies in the third quarter of this year were up again rising 0.1% on the previous quarter to 5,465.

This quarter has seen a number of brand names looking to scale back to limit their exposure to poor trading conditions. BAE and LloydsTSB are just some of the names to announce thousands of UK job cuts.

With many analysts predicting that inflation has now peaked, there may be hope for some manufacturers and retailers but whatever happens, the outlook for the next quarter continues to be bleak for businesses with sluggish growth and a difficulty to access working capital.

Bev explained: “Since the recession, some of the high-streets biggest names have been forced to close stores or have fallen by the wayside completely. Unfortunately, I see this trend continuing as businesses struggle to come to terms with these austere times.

“However, there is good news, with some businesses doing a roaring trade and expanding all the time. If you have a good product, backed up by a sensible business plan, you are always likely to survive and thrive – this hasn’t changed.

“The outlook is, at best, uncertain and it still remains to be seen whether Government schemes like project ‘Merlin’ will help to fund growth and influence future liquidations.”

Submitted by Bell Pottinger North

Quarterly rent payments fall in March, June, September and December and are a hefty outgoing for struggling firms. Three months ago Habitat, Homeform and Jane Norman all fell into administration, and the current situation is little improved with retail sales in August falling 0.1 per cent from the month before.

Frances Coulson, R3 President, comments:

“Last time round, the rent day identified many retail businesses that had survived the recession, did not have the funds to meet their rental obligations. They had depleted their reserves to stay afloat and had no contingency plan for additional costs, unexpected outgoings or a fall in sales.”

“Over the preceding three months we have seen little improvement in retail sales, economic growth or consumers increasing their expenditure. For that reason we are likely to see further retail casualties.”

R3’s latest Business Distress Index revealed a quarter of retailers say they are having cash flow difficulties, while nearly one in ten (8%) of retail businesses believed they would enter insolvency over the next 12 months. Six in ten (58%) retailers are experiencing a decrease in profit; twenty-four per cent higher than the cross sector average.

Frances Coulson continues:

“The pressure on retailers is two-fold. As consumers have less money to spend, stores are discounting their prices to get people through their doors; this is at a time when inflation and rising commodity prices have increased costs. Given the nature of the retail business, it is extremely worrying that one in four is experiencing cash flow difficulties. This suggests that many are holding a large amount of stock or have slow moving stock.

“For the businesses that are given another chance by the bank, hoping Christmas expenditure will see them return to economic health could be in vain. Consumers are curtailing their spending as the price of everyday essentials go up and are likely to be spending less on Christmas this year.”

R3 President Frances Coulson comments: “The new measure would drive a coach and horses through attempts to rescue businesses formally or informally.  Cash flow is critical during delicate rescue work.  Removing access to substantial funds without notice gives a single creditor the right to jeopardise hopes of business preservation, harming creditors as a whole.”

Though intended to help creditors protect assets from concealment or removal by directors, the EAPO’s loose drafting enables the measure to be granted for a range of reasons unrelated to a serious risk to assets.  As such, they risk being routinely granted in cross-border debt recovery cases.

Coulson continues: “The UK is seen as an international leader in business rescue, benefitting creditors who usually receive higher returns in rescue than terminal procedures. If EAPOs are supposed to protect assets from dodgy directors, the new regulation should reflect this objective.  As they stand, the proposals are dangerous and draconian.”

The UK Government now must decide whether to opt out of the plans, which are moving apace.

“R3 has long campaigned for the rebalancing of the relationship between debtors and creditors, as a number of creditors petition for bankruptcy on low levels of debts. The threshold of £750 which was set in 1986 is now outdated. The Government today acknowledged: ‘that to be able to threaten someone with bankruptcy for such a small amount is disproportionate.’ We are pleased the Government is listening to R3’s concerns on this issue.

“The Minister also revealed that the Government recognises the potential for regulatory reform of Debt Management Services. We have called for better regulation of the Debt Management Plans (DMP) industry for some time. R3 research shows that DMPs are often unworkable because the level of debt is too high, and 10% of individuals in a fee-charging DMP were not told they would be charged until the scheme began. We call on the Government to go beyond recognising the need for reform and make the necessary changes to the industry.  R3 suggests the regulation of the DMP market be removed from the OFT and become the responsibility of the Insolvency Service, to ensure all insolvency providers are regulated to the same high standard.”

Submitted by R3

R3 President, Frances Coulson comments:

“These figures make for worrying reading. It is clear that many have found themselves in a position whereby they have to go into and often exceed their agreed overdraft in order to keep on top of their bills and debt repayments. Unfortunately, more often than not this leads to bank charges, which further deplete the amount available for bills. It’s a catch-22 situation which can result in debts snowballing.”

Five million people worry about being made redundant, however a third of people (32%) now admit that they are saving less than they used to – up 8 percent on the previous quarter; this equates to fifteen million people.

Coulson comments:

“A sudden change in circumstance such as redundancy tends to trigger insolvency so it is always advisable to put some money aside as a buffer. However, with many effectively experiencing a pay cut as living costs continue to rise, this is not always possible. With costs rising, it’s unsurprising that over a third of people (36%) believe that their financial situation will worsen over the next six months.”

“Interestingly, our research shows that 19 percent of people now set a budget. This is definitely a positive step as, for those who are struggling with their debts, a budget is a key tool which allows you to clearly compare how much money you spend against your income. This will help to identify if any savings can be saved and where.”

Submitted by R3