Fall in new bankruptcy figures

The number of new bankruptcies in the first quarter fell compared with the same period last year, although a jump in companies going bust suggests the credit squeeze may be starting to hit small businesses.

New figures from the Insolvency Service showthere were just over 25,000 individual insolvencies in England and Wales in the first three months of 2008, down 13 per cent from the same period last year.

The insolvencies consisted of 15,651 bankruptcies and 9,614 Individual Voluntary Arrangements, a form of insolvency. The number of people taking out IVAs showed a 22 per cent drop on the first quarter of last year.

Numbers of company liquidations in England and Wales were slightly up in the first quarter, increasing 2 per cent to 3,210. However, the figures show that the number of companies placed into administration rose to 858, compared with 557 in the last quarter of 2007. There was also an 85 per cent jump in companies going into receivership, from 147 to 273 in the same period.

Malcolm Shierson, a recovery and reorganisation partner at Grant Thornton consultants, said unless there was a relaxation in lending criteria from banks there would be worse to come as the credit squeeze fed through to small companies.

"Recently there has been a great deal of attention placed on the effects of the credit crunch on the housing market, but businesses are also struggling to refinance, something that is directly reflected in today's figures," Mr Shierson said.

Liz Bingham, head of corporate restructuring at Ernst & Young, said personal insolvencies were set to gather pace as higher mortgage costs and more expensive food and fuel started to feed through to consumers.

Experts also said the latest fall might mask deeper problems, because banks were now putting over-indebted consumers on informal Debt Management Plans rather than allowing them to become insolvent - leaving banks to write off their outstanding debts. In the past two years, banks have written off millions of pounds in bad debts because of consumers being unable to pay credit card bills and repay unsecured loans.

R3, the trade association for insolvency and business recovery specialists, said the 25,264 individual insolvencies did not include those consumers who were put on Debt Management Plans.

"The true number of individuals unable to pay their debts in the UK could be three times higher than the Insolvency Service's figures due to those in Debt Management Plans not being counted," said Nick O'Reilly, president of R3.