MANY individuals and businesses are still struggling with their finances, says an insolvency expert.

Chris Wood, a committee member for insolvency industry body R3 in Yorkshire, said latest official figures showing a fall in individual and corporate failures were giving a false sense of security.

Mr Wood, a partner at Cleckheaton-based Clough Corporate Solutions, said an 8% fall in then number of individual insolvencies last year and a 24% decline in bankruptcy orders were encouraging.

But he said this should not be taken as a sign that people were prosperous and financially secure.

Said Mr Wood: “There remains a vast majority of individuals who are still struggling with their personal finances.

“This is evidenced by consumer spending falling as people continue to prioritise paying down their debt.

“Individuals typically petition for bankruptcy because of credit card and bank debt that they cannot repay.

“However, in recent times we have seen more manageable repayment plans put in place by lenders. This has allowed indebted individuals to pay off their debts over a longer period of time instead of entering formal insolvency.

“If lenders were to become more aggressive in their pursuit of debts owed, it is likely that we will see more individuals becoming insolvent.”

Mr Wood said that many people not included in the official figures were likely to be in an informal insolvency procedure such as a debt management plan or were resorting to payday loans to make ends meet.

R3 research has revealed that 5m adults say they are likely to seek a payday loan in the next six months – up from 3.5m a year ago.

Mr Wood said the decline in corporate insolvency was “a welcome sign”.

The number of company liquidations fell by 4% in 2012 with administrations l12% lower.

But Mr Wood said: “These figures do not take into account the size and impact of the businesses that fall into insolvency.

“In 2012, we saw some high profile retail casualties including Comet, La Senza, Game and Clinton Cards.

“The biggest 12 retail insolvencies accounted for over 1,700 store closures and 26,500 jobs. That is over a fifth of the total redundancies resulting from insolvency in a year.

“R3 research shows there are now 160,000 ‘zombie’ businesses in the UK – businesses only able to pay the interest on their debt, but not the debt itself.

“Zombie businesses have remained in distress for some time. They are unable to invest or expand, but are nonetheless being kept alive by lenient creditors and low interest rates.

“Whilst low insolvency rates are good for employment, this stagnation does tie up capital that could be used for other, healthier businesses.”