UK bankruptcies at record high as recession deepens

The extent to which the recession has tightened its noose around the UK's economy was revealed yesterday in the statistics released by the country's Insolvency Service that showed that 15,535 companies went bust and 67,428 people were bankrupted in England and Wales in 2008.

In a grim warning, economists say more will come this year.

The last quarter showed the highest insolvencies, revealing the government's helplessness in handling its huge and unsustainable debt as economist painted an even worse picture saying that this was just the tip of the iceberg.

Figures released by the Insolvency Service reveal that companies who filed for compulsory liquidations and voluntary liquidations in England and Wales leaped by 24 per cent to 15,535 last year and one in every 150 companies actively traded in the stock exchange went bust.

Nearly 4,607 companies went into liquidations in the last quarter - an increase of 51 per cent compared to the same quarter last year - as bankers refused to lend in spite of receiving government handouts, thus tightening the noose on businesses struggling to refinance loans and raise capital.

There were 5,494 compulsory liquidations and 10,041 creditors voluntary liquidations last year and the overall number of companies filing for administration rocketed by nearly 125 per cent in the last quarter of last year.

Individuals were not spared either with 67,428 bancrupt individuals in 2008, implying 350 individuals becoming insolvent every working week day in 2008, up from the previous year's 64,480, itself a record ever since the UK government started maintaining insolvency statistics from 1960.

The last quarter had 29,444 personal bankruptcies or individual voluntary arrangements (IVA) which was an increase of 19 per cent and of it 19,100 were bankruptcies and 10,344 were IVAs.

Currently an estimated 110,000 people are in voluntary arrangements and more than 700,000 people who are dealing with their debts on their own.

December lending figures have indicated that a large number of people have moved their debts to personal loans and credit cards, which attract a higher interest rates compared to last year as banks have raised interest rates for unsecured lending. This, coupled with bankers and lenders in some cases refusing to extend borrowers' mortgages will force already burdened debtors into insolvency.

Worse, economists warn that these figures have not peaked and with companies resorting to job cuts everyday, people will find it even more difficult to manage their debts and the UK should be prepared for even worse figures in the future if the government is not able to stop the country's economy from sliding even further.

Although the Bank of England reduced its official bank rate for the third time in three months, with the latest cut two days back by 0.5 percentage points to 1.0 per cent, bringing the interest rate paid on commercial bank reserves to an historic low of 1.0 per cent, (See: Bank of England cuts Bank Rate by 50 bps to 1.0 per cent) in it may help some people but may not stop the insolvencies from rising.

Late last month, the International Monetary Fund painted a sorry picture for the recession-hit UK economy, forecasting that the British economy would perform the worst among all developed nations and contract 2.8 per cent this year. (See: IMF paints gloomy picture for UK economy)

The IMF also warned that 2010 would fare only matginally better, with the UK's GDP expanding by a mere 0.2 per cent.

The UK's Office for National Statistics had also released its figures last week, showing that the country had two successive quarters of negative growth, with the economy shrinking by 1.5 per cent in the final three months of 2008 forcing analysts to predict a long and deep recession.