Personal insolvencies fell to three-year low across 2020

The number of personal insolvencies recorded in England and Wales fell to a three-year low in 2020.

The Insolvency Service said there were 111,424 individual insolvencies in 2020 – a total which was down by 9% on 2019.

It marked the lowest annual figure since 98,897 personal insolvencies were recorded in 2017.

The service said the fall in cases was driven by low volumes of bankruptcies and debt relief orders (DROs), which both decreased by 25% from the previous year.

The number of individual voluntary arrangements (IVAs) in 2020 was higher than the number registered in 2019, although the increase from the previous year was small, it said. IVAs are agreements whereby money is shared out between creditors.

The service said the fall in personal insolvencies last year is likely to be at least partly driven by Government measures put in place in response to the coronavirus pandemic, including reduced HM Revenue and Customs (HMRC) enforcement activity following the first UK lockdown in March 2020.

Coronavirus financial support measures to help people and businesses will also have had an impact, it said.

The service added that as it does not record whether an insolvency is directly related to the pandemic, it is not possible to state its direct effect on insolvency volumes.

It also released company insolvency figures, which showed the total number of cases registered in 2020 fell to the lowest annual level since 1989.

There were 12,557 underlying company insolvencies in 2020, excluding bulk cases, marking a reduction of 27% compared with 2019 numbers.

The industries experiencing the highest number of insolvencies in the 12 months ending in the fourth quarter of 2020 included construction, accommodation and food services.

Colin Haig, president of insolvency and restructuring trade body R3, said the most significant factors behind the fall in company insolvencies are Government coronavirus support measures for businesses and the suspension of creditors’ ability to take action against many corporate debtors.

He said: “It’s a question of when, not if, levels of corporate insolvency increase this year, but the timing will depend on when – and how – the Government support ends.

“2020 was a devastating year for British businesses. The pandemic and the series of lockdowns which were introduced in an attempt to slow down infection rates took a toll on the economy and made it harder for firms to operate.

“The retail, hospitality and tourism sectors have been particularly badly hit, and we have seen a number of household names enter an insolvency process or announce restructurings in an attempt to mitigate the effects of the pandemic.”

Looking at personal insolvency figures, he said: “Despite the fact that personal insolvency numbers decreased in 2020 compared to the year before, this trend doesn’t show the full picture of how the pandemic has affected individuals.”

He added: “The pandemic has hit people’s finances hard. While many have been able to save money and repay debts, there are millions more who have had to borrow to get through it, and who are increasingly vulnerable to financial problems caused by unexpected issues like missed benefit payments, unexpected bills, or redundancy.

“Government initiatives like the furlough scheme, coupled with payment holidays from banks and other lenders, have provided a critical safety net for many, but sadly these can’t last forever and haven’t been able to help everyone.”

He suggested anyone with money worries should “speak to a reputable and professional source as soon as they can, as debt problems only get worse as time goes on”.