BRITAIN is on the road to economic recovery, says an insolvency expert.
But the recovery rate will be painfully slow as debt-hit individuals and businesses fight to revive their fortunes.
Meltham man Peter Sargent, an insolvency practitioner and partner with Begbies Traynor, said the recent recession – billed by many insolvency experts as the worst in living memory – had failed to follow the pattern of previous downturns.
Said Mr Sargent: “As part of the usual economic cycle both corporate and personal insolvencies tend to rise as the economy comes out of recession, and unemployment statistics also follow this trend.
“This time, however, things have been very different. It has been hard for businesses, very hard, but the numbers of companies entering some form of formal insolvency procedures has not hit the heights expected. On the other hand, the number of individuals seeking an insolvency solution has reached record levels.”
Mr Sargent said the increase was due to a combination of factors, including changes to legislation which reduced the period of bankruptcy from three years to one year, record amounts of domestic lending and the marketing of IVAs as a domestic debt solution.
“As soon as the economy dipped and those debts could no longer be serviced, the individuals were pushed over the financial edge into insolvency,” said Mr Sargent. “Some took shelter in Debt Management Plans, others opted for IVAs and bankruptcy and for those with low level of debts and no assets or surplus income, the Debt Relief Order was introduced.
“In previous recessions, most personal insolvencies had been connected with a business in one way or another. This most recent recession was different. The statistics flipped and the vast majority of personal insolvencies are now of a domestic nature.”
Mr Sargent said the anticipated increase in corporate insolvency at the end of the last recession had not materialised.
“This is down to four factors,” he said. “Firstly, business was in better shape when the economy went into recession than in previous cycles and had more wool on its back. Secondly, the use of IT means management is better informed than ever before about how the business is performing. Thirdly, banks have tried to support business wherever possible. And finally, HM Revenue & Customs has also supported business where it can with the widening of the time to pay initiative.”
Said Mr Sargent: “Current economic predictions talk of a long slow recovery with the debt burden taking its toll on both business and domestic spending. It is going to be hard work but the economy will recover.”