In Paris Smith’s latest Corporate Restructuring & Insolvency blog, team leader and Chair of R3 in the South, Mike Pavitt, examines some of the reasons behind the numbers and ways these might be addressed.

Whilst my day job is heading up the Corporate Restructuring & Insolvency team at Paris Smith LLP, by night (and often by breakfast, various days in London and elsewhere on training and conferencing across the country) I pick up my glittering scythe and don my black cowl and become “InsolLawMan”. Actually, I don’t; @InsolLawMan is just my Twitter handle, and the scythe and cowl are just a stereotype which various media still seem to apply to insolvency practitioners every time another company “falls into administration” (a particularly daft epithet for what is ultimately intended as a rescue procedure), but I like the imagery.

What I do actually become, though, is Chair of the Association of Business Recovery Professionals (R3) for the Southern Region, a post which I have occupied now for the better part of 3 years. R3 is a not-for-profit organisation and the leading professional association for insolvency, business recovery and turnaround specialists in the UK, promoting best practice for professionals working with financially troubled individuals and businesses. R3 has representation around the UK and provides a forum for debate on key issues facing the profession. In my capacity as Chair I am privileged to have access to statistics analysed by R3’s experts in London, from which I am often able to identify trends of genuine interest to people in the Central Southern Region, in which I and Paris Smith mainly operate.

In today’s blog I wish to share some insights into where personal insolvency numbers across that region seem to be heading, and to suggest some areas of focus for law and policymakers who may wish to respond to these trends. As the available statistics are so vast, however, I have selected just 5 local authority areas within the region to concentrate on, which I think best exemplify the regional, gender and age-based disparities in the personal insolvency landscape, namely:

• Basingstoke & Deane
• Winchester
• Southampton & Eastleigh
• The New Forest
• The Isle of Wight

But first, a bit of context

It was revealed on 9 August 2019 that the UK economy shrank by 0.2% of GDP between April and June 2019, the first official contraction in GDP in more than 6 years. This announcement came hot on the heels of the Insolvency Service having released its latest personal insolvency statistics for the same quarter, alongside its official personal insolvency analysis for the last full calendar year (2018), both of which reveal a similarly troubled picture.

Overall personal insolvencies in England and Wales actually fell very slightly during both Q1 2019 and Q2 2019 but this was only a gradual adjustment following an 8 year personal insolvency high water mark in Q4 2018. At all events, Q2 2019 still saw a 7% year on year increase compared with the same quarter in 2018, so nobody could begin to claim that personal insolvencies are emerging from any woods just yet.

There continues to be significant inequality in rates across the nation, and in comparisons between the male and female personal insolvency rate, but in many ways the most interesting numbers from our perspective are revealed when we drill down into the numbers for the various local authority areas which make up the Central South, which region serves as a sort of microcosm of all the national disparities and reveals some quite surprising trends.

The Insolvency Profession

Before I say anything more, I should declare my interest here to the extent that even increasing personal insolvency rates are not always a bad thing. That may seem counterintuitive, or even controversial, but for many people entering into a personal insolvency procedure will represent a largely fresh start, and an opportunity to resolve historic financial difficulties and to move on towards a more productive future. Each person out of 10,000 who accesses an official insolvency procedure becomes a personal insolvency statistic, but they are also a person who has very likely taken the first step on an important road to future financial stability. Similarly, from a creditor perspective, there are obviously individuals who have caused loss to others through their economic behaviour, and there is occasionally a need for a level of censure, and a procedure which brings with it powers to undo some of the damage caused and to pay dividends to those creditors to mitigate their losses. In that sense, every community probably has a ‘healthy’ number of personal insolvencies, a rate which may need to increase from time to time in line with general economic conditions; it would be wrong to even try to target a zero rate, because this would mean there were people who were in need financial rehabilitation and creditors in need of a remedy, neither of which interest group had been able to access it.

That said, comparatively high and/or sharply rising official personal insolvency rates, such as those we have seen in recent months, can serve as a wake up call – a sign that a region needs to take action to respond to emerging economic threats and challenges which are obviously disrupting that ‘healthy’ level, and to signpost people to the tools needed to address these issues at an earlier stage, so that as many of us as possible can avoid ever having to become a personal insolvency statistic.

One other caveat I would offer before we begin to look at the numbers properly is that the official statistics inevitably fail to capture the high number of people who are in unofficial and/or unregulated debt management plans or similar arrangements, which may ultimately help them, but may also simply be kicking the can down the road and/or prolonging the financial pain for everyone, and all the stress which goes with it.

But with the health warnings now all out of the way, and if you are still reading, please allow me, if you will, to take you on a whistle stop tour of the Central Southern region, from Basingstoke & Deane to the Isle of Wight, with a sideways glance towards Poole and Portsmouth and to explore with you what the numbers potentially reveal about the economy of our region.

First, the national picture

In England and Wales overall, the personal insolvency rate per 10,000 adults rose from 21.4 in 2017 (1 in 467) to 25.0 in 2018 (1 in 400) (the National Rate). In the South East region as a whole – which has invariably fared better than most other regions around the UK – we saw the rate per 10,000 adults rise from 19.1 in 2017 to 22.3 in 2018 (1 in 448) (the Regional Rate). Both the National Rate and Regional Rate climbed by 16.8% in 2018. This personal insolvency data is a combination of bankruptcies, individual voluntary arrangements and debt relief orders.

In terms of the gender bias in the insolvency rates, nationally the personal insolvency rate for females rose from 22.6 in 2017 to 26.6 in 2018 (1 in 376) (the National Female Rate), a rise of 17.7%, whilst the rate for males rose from 20.2 in 2017 to 23.3 in 2018 (1 in 429) (the National Male Rate), a rise of just 15.3%. The gender gap in terms of the personal insolvency rate (with female insolvencies now 14.2% higher than male) is therefore continuing to widen.

In terms of age groups, the national picture continues to suggest that people in the 35-44 age group are worst affected by personal insolvency, although the trend is towards an increasing representation for those in the 25-34 age group. The rate for over 65s continues to be low to negligible.
In England and Wales overall, there were over twice as many individual voluntary arrangements (IVAs) as DROs (61% of all personal insolvencies were IVAs, 24% were DROs, and 15% were bankruptcies).

See ‘Further Information’ below, for nationwide explanations of the differing personal insolvency procedure and for the reasons for the existing gender gap. For now, though, we can set off on our journey around the Central South.

1.     Basingstoke and Deane: Middle of the road but some worrying trends

Our journey begins in the north of Hampshire, in the Basingstoke and Deane local authority area, which is the closest example we have of a local authority area which follows quite closely the national trend in terms of overall insolvency rates.

The statistics reveal that in Basingstoke & Deane in 2018 there were 24.5 insolvencies per 10,000 adults (1 in 408), compared to 21.2 in 2017, a rise of 15.6%.

Although Basingstoke & Deane still saw a significant rise in personal insolvencies therefore, and the overall rate was only slightly lower than the National Rate and above the Regional Rate (perhaps unsurprising given that the South East includes affluent local authority areas such as Mole Valley in Surrey), the rate of increase in Basingstoke during 2018 was lower than either the national or the regional increases, suggesting that Basingstoke remains a relatively safe haven in terms of personal insolvency risk, in 172nd place out of 348 local authorities.

Of somewhat greater concern was the fact that Basingstoke & Deane’s female insolvency rate (at 27.8) was almost 32% higher than its male insolvency rate (at 21.1). This disparity is considerably worse then the national average disparity, as was the proportion of individuals aged between 25-34 affected by personal insolvency (at 43.3) so it seems that Basingstoke might not be quite as safe a haven from personal insolvency for women or young people as it is for men or the elderly.

The most frequently used type of insolvency in Basingstoke in 2018 was individual voluntary arrangements, accounting for 67% of the total, which is a little higher than the national average.

There could be a number of reasons why the gender gap is particularly challenging in Basingstoke & Deane and why young people also seem to be disproportionately affected within the local authority area, but policies targeted towards mitigating the effect of loss of employment and/or relationship breakdown, and promoting education in economics and financial hygiene may be needed to address these somewhat worrying trends.

2.     Winchester: Remains in lowest risk bracket but still room for improvement

Heading further South, it is perhaps also unsurprising that Winchester and its environs fare better than any of the other local authority areas in the Central South.

Winchester’s personal insolvency rate remained the lowest in Hampshire, at just 16.9 insolvencies per 10,000 adults (one in 591), compared to 16.4 in 2017, an increase of just 3%. That said, in the same period the personal insolvency rate in other parts of the South East which might be regarded as significantly less affluent than Winchester, such as Slough and Aylesbury, actually declined.

Winchester is 297th out of 348 local authorities in terms of its rate of personal insolvency but it’s gender gap was slightly worse than the national average (at 14.6%) and, like Basingstoke, its worst affected age group – by some margin – was those aged 25-34.

The most frequently used type of insolvency in Winchester in 2018 was again the individual voluntary arrangement, accounting for 58% of the total, although the proportion of overall personal insolvencies in the area represented by bankruptcy was higher than other, neighbouring regions. With affluence comes opportunity and it is probable that the higher proportion of individual debtors requiring a bankruptcy remedy reflects a higher proportion of individuals in the area who are self-employed consultants and/or committed to expensive lifestyles and/or who have personally guaranteed corporate exposures within businesses.

There is no doubt that Winchester remains an affluent and desirable place to live and work for its 50,000 residents and despite some uncertainty over city centre redevelopment plans costing it a place in The Sunday Times Best Places to Live last year, it’s back on the list for 2019 and thriving. Like Basingstoke, however, it could perhaps benefit from policies aimed at addressing gender inequality and educating its younger people in terms of financial hygiene and risk.

3.     Southampton & Eastleigh: Concern re deterioration in insolvency rate and growing gender gap

As we follow the M3 as far South as we can, we find that Southampton’s personal insolvency rate made a huge leap in the wrong direction in 2018, to place it significantly above the England and Wales average, in stark contrast to the neighbouring Borough of Eastleigh.

Having previously seen a rate of just 19.9 per 10,000 in 2017, which was very similar to Eastleigh’s rate of 19.6 at that time, in 2018 Southampton’s rate leapt by fully 32% to 26.3 (1 in 380), whilst Eastleigh’s barely moved by comparison, up just 5.9% to 20.8 (1 in 482).

These results leave Southampton having the 128th highest personal insolvency rate out of 348 local authorities in England and Wales, just outside the worst performing third of local authorities, with Eastleigh in 240th spot, comfortably in the best performing third. Whilst other councils in the South East, notably in Oxfordshire and the Thames Valley, saw worse rates of deterioration, Southampton was by far fastest declining local authority area in the Central South.

Just as startling as Southampton’s sudden slide down the league table is the fact that its gender gap is now even worse than Basingstoke & Deane, with the female insolvency rate some 35% higher than its equivalent male rate (30.3 against 22.5). The male rate was actually lower than the national average, but the female rate was almost 14% higher than average, and if it were not for this Southampton overall would be much closer to, or even below, national trend. The one significant blip in Eastleigh’s figures was that they, too, had a huge gender gap, with the female insolvency rate being 36% higher than the male (23.8 against 17.5), 1% worse in comparative terms even than Southampton.

Quite unlike the above local authorities, however, Southampton had a much more traditional demographic in terms of its worst affected age group, with those aged 35-44 very significantly more likely to face personal insolvency than any other age group. Curiously, Eastleigh followed the newer trend, with its worst affected age range being 25-34.
The most frequently-used type of insolvency in Southampton in 2018 was individual voluntary arrangements (IVAs), accounting for 63% of the total, about national average, with Eastleigh somewhat higher at 67%.

Whilst on one view it would be tempting to conclude that Southampton’s decline in terms of its personal insolvency rate is in some way a reflection of national insolvency trends whereby coastal areas often now have higher insolvency rates than inland areas, in Southampton’s case this does not really bear closer analysis. Whilst the importance of the cruise industry to the city is not to be underestimated, Southampton is a very significant commercial port with a full range of support industries, and not in any way unusually vulnerable to the tourist pound or seasonal trade. Anecdotally it is more likely to be vulnerable to the departure of some of its more established EU immigrant populations and a general reliance on overseas trade. To understand these numbers fully would require much more research, but the city’s planners need to take note of the fact that personal insolvency – particularly female personal insolvency – is now a real issue for the populace in a way which it was not until very recently.

4.     The New Forest: Bucks national trend for coastal areas

The position starts to improve as we move West, into the New Forest. Although the overall rate climbed (from 18.1 in 2017 to 20.2 in 2018, a rise of 11.5%), the rate (of 1 in 495) remains well below both the National Rate and the Regional Rate, and the rate of deterioration has been much less pronounced than that experienced either nationally or in neighbouring Southampton.

The statistics rank the New Forest 250th out of 348 local authorities in England and Wales in terms of its rate of personal insolvency. Again, however, the gender pay gap lets the New Forest down slightly, with the female insolvency rate being at 21.5 per 10,000, 16.2% higher than the equivalent male rate of 18.5.

The most frequently used type of insolvency in the New Forest in 2018 was individual voluntary arrangements (IVAs), accounting for 60% of the total, so about average. In terms of worst affected age groups, the New Forest shows an almost even split between the 25-34 age group (which was prevalent amongst male insolvencies) and the 35-44 age group (which was prevalent amongst female insolvencies).

Whilst it has been observed that the New Forest, comprising some 219 sq miles of national park, appears relatively unaffected by the sort of tourism-related exposure suggested by its location, the reality is that the New Forest is less susceptible to bad weather than, for example, beaches and that the New Forest District Council area also comprises several year round productive economic areas including Waterside, Lymington and Ringwood. It is therefore perhaps not so surprising that the area fares significantly better than most of its neighbours.

5.     Isle of Wight: 13th highest personal insolvency rate in England & Wales but showing possible signs of improvement

And so for the last leg of our mini-tour we leave Hampshire altogether and head across the water to the Island, where we are greeted by mixed fortunes.

Traditionally, the Isle of Wight – with around 132,000 inhabitants the second most populous island in the UK after Portsea – has performed amongst the worst local authority areas in the country, and today it remains relatively badly affected, being ranked with the 13th highest rate out of all local authority areas in England & Wales.

The statistics show that in 2018 the Island saw 39.3 insolvencies per 10,000 adults (equivalent to 1 in 254), compared to 37.4 in 2017. This was a comparatively small increase, of just 5.3%, but from a much higher base than any other local authority area in the Central South.

As with 2017, the most frequent type of insolvency on the Isle of Wight was debt relief orders (DROs), accounting for 48% of the total. The Isle of Wight sits third for the highest rate of DROs of all 348 districts.

The data also revealed the insolvency rate for women on the Isle of Wight had increased from 40.7 in 2017 to 43.7, some 25% higher than the equivalent rate for men, of 34.7 per 10,000 adults. Whilst the gender gap on the Island is therefore significantly higher than the national average, it is comparatively much better than Basingstoke & Deane, Southampton and Eastleigh.

Insolvencies were again highest for Islanders in the 25-34 age group, with 102.6 per 10,000 adults, but the figure for young women was particularly high, at 129.3 per 10,000 women (1 in 77).

In the case of the Isle of Wight it is clear what the causes of the high personal insolvency rate are. The Island relies economically upon an influx of tourists in the summer months, on the consumer pound, which has been in shorter supply of late. The seasonal nature of tourism-related work, particularly on the Island, makes it hard for many residents to build up savings to last them in leaner times, leaving them vulnerable to the type of economic shock that can often trigger insolvency. Unlike the New Forest District Council area, despite pockets of productive industry on the Island, there is no economic powerhouse located nearby to provide a continuous source of employment outside the holiday season. The first to suffer the economic hit when the income is not there are the young and those who are not economically mobile.

A much higher personal insolvency rate is a symptom of endemic and wider deprivation, and highlights the need for policy makers to step in at a macro economic level and for regional development funds to be established and pursued vigorously. In the meantime, it highlights the need for debt advice services to be targeted and tailored for people living in less affluent areas of the island, so they can access the help and support they need.

Best of the rest

As indicated above, space does not permit a wider analysis here of all local authority areas in the region, but in selecting the above as the best exemplars of the region, I also took a sideways both East and West along the coast to see if we could draw any particular trends, or support for trends already witnessed.

To the East, for example, the Borough of Fareham fared especially well – though not as well as Winchester – in 281st place out of 348. Its male insolvency rate was actually higher than its female insolvency rate, whilst the worst affected age group was 35-44.

By massive contrast, however, neighbouring Gosport (which is coastal, but not exactly a tourist destination) fared especially badly – though not as badly as the Isle of Wight – in 51st place. Its female insolvency rate was a fair bit higher than its male rate, and the worst affected age group was 25-34.

The other side of Gosport, on another island, the City of Portsmouth also fared poorly, moving 25 places in the wrong direction, climbing to 80th worst performing local authority area. There the gender gap was even bigger, but the worst affected age group by a country mile was 35-44, with (very unusually) 45-54 year olds more likely to become personally insolvent than 25-34 year olds. Portsmouth and Gosport also saw high rates of decline (22 and 29% respectively, though neither as bad a rate of decline as Southampton).

Looking to the West, there is a similar story there. The Borough of Poole fared well enough, in 215th place, with virtually no gender gap and with 35-44 year olds the worst affected, whilst Christchuch finished 191st, with a reverse gender gap favouring women and with 35-44 year olds again worst affected. However, sandwiched between these two local authority areas is Bournemouth, which presented a completely different picture, placed dozens of places below them in 119th and had a very low gender gap, but saw 25-34 as its worst affected age group. Poole’s rate of decline was only a little higher than average, whilst curiously Bournemouth – like the Isle of Wight – appeared to have arrested its decline. Even more surprisingly, Christchurch’s year on year position had worsened by 43%, the highest rate of deterioration in the Central South, albeit starting from a relatively secure position.

Conclusion

The personal insolvency statistics produced very recently tell a more interesting story than any prior statistics I can remember since the Insolvency Service started publishing them many years ago. The overall picture is one of decline and increasing personal insolvency risk, albeit largely in line with national trends, but within the region it appears to be largely a postcode lottery as to where the risk of personal insolvency will mostly be felt, and whether there will be a pronounced gender gap or none at all.

The prospect of a possible hard Brexit, perhaps a new recession, and the impact which the uncertainty of the EU departure process has already had upon order books and business stockpiling are unlikely to relieve the pressure upon personal insolvency risk very soon. With guidance from R3 and others, the government are slowly putting into place some measures which might help private individuals facing creditor pressure win a breathing space so they can access appropriate advice but there are more structural matters to be addressed. The difference in rates between the local authorities in the same regions with the highest and lowest rates illustrates the need to target interventions for people in debt carefully, to ensure the people who need it most are able to access help and support. It is also striking that the areas of deprivation do not – on the whole – appear to have changed since the Insolvency Service started compiling these statistics. The factors which R3 has identified as contributing to higher levels of personal insolvency – such as the insecure nature of seasonal work in many coastal areas, and the deprivation caused by factory closures in post-industrial areas – are not phenomena which can be ‘solved’ overnight.

All the more reason, then, that those in a position to do so make every effort to signpost to those who may be in need of financial rehabilitation that there are plenty of qualified and regulated insolvency practitioners in our region who would be only too happy to advise people upon the range of options available to cope with economic adversity.

If anyone affected by any of these issues is in need of such services, or you think you might be in due course, for example because you are involved in a dispute which is causing you significant cost, I would be delighted to help you find the right advice. The sooner you can access that advice, typically the more options you will have to avoid becoming a personal insolvency statistic.

FURTHER INFORMATION

What causes insolvency among men and women?

R3 published a report in June 2016 on the different causes of men’s and women’s insolvencies. You can also view a summary of the report.

In 2016, the government also published statistics on the 17 causes of bankruptcy in 2015 as categorised by the Insolvency Service and broken down by gender. The statistics showed that:

• 34% of men’s bankruptcies in 2015 were caused by the bankrupt’s own company running into financial problems, compared to 13% of women’s bankruptcies (26% for all adults).
• The most common single cause of men’s bankruptcies in 2015 was ‘living beyond means’ (approx. 995 bankruptcies), closely followed by ‘management failure’ at their own company (990), and the bankrupt’s loss of their job (920).
• The most common single cause of women’s bankruptcies in 2015 was ‘living beyond means’ (1,110), ‘relationship breakdown’ (1,075), and the loss of or a significant reduction in household income (750).

Different types of insolvency

Bankruptcy: During a bankruptcy your assets are placed under the control of a trustee who will use them to raise money to repay creditors. You are bankrupt for a year (during which you are subject to some restrictions, such as not being able to be director of a company), although your assets may stay under the trustee’s control after that. A creditor may petition the court to have you made bankrupt if you owe them at least £5,000, or you can apply to be made bankrupt yourself (which costs £680 in up-front government and court fees for online applications). With some exceptions, your debts are ‘cancelled’ at the end of the process.

Individual Voluntary Arrangements: A statutory agreement between you and your creditors to repay a certain portion of your debts over a certain period of time. You retain control of your assets and the agreement is overseen by an independent supervisor. You usually have to have some surplus income left over after your living costs every month from which to make payments.

Debt Relief Orders: You may enter a DRO if you have under £1,000 of assets and under £20,000 of debts. Your assets are not used to repay creditors and your debts are ‘cancelled’ at the end of the process. Like bankruptcy, you subject to some restrictions for a 12 month period.