A record number of people could be declared bankrupt or insolvent in 2008, it has been warned.

Accountants KPMG said a combination of tighter lending rules and a massive spending over the Christmas period could mean over 130,000 borrowers are likely to enter into Individual Voluntary Arrangements (IVAs) or be declared bankrupt in the New Year.

That would see a rise of 19 per cent this year in England and Wales, as figures were expected to be just under 110,000.

KPMG said its research showed around 43,000 people used the IVA route to write off a portion of their debts in 2007.

Another 67,000 people were declared bankrupt during the year, increasing the total number of personal insolvencies to the highest ever level.

The firm's research showed the average IVA debtor owed £50,300, with more than 2,500 people owing more than £100,000.

Mark Sands, KPMG's personal insolvency director, said: "This high average level of debt clearly indicates that too many people have borrowings that they have no realistic hope of repaying.

"Any excessive spending over Christmas and at the New Year sales, especially where goods are paid for on credit, risks tipping even more consumers over the edge.

"The credit crunch is resulting in increased rejections of credit card applications and a reduction in the availability of loans secured by a second charge on the family home.

"Those in difficulty will find that their options are becoming limited - formal insolvency will for many be the only way out."

This year, £1.3 billion of bad debts were written off by creditors because of people taking the IVA route, compared to £1.4 billion in 2006.


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Insolvency experts are on standby amid fears several high street retailers could collapse in January.

Following the quarterly rent call last week many chains are already struggling.

Footwear and clothing retailers have been particularly badly hit by the downturn in consumer confidence.

Stead & Simpson, the 350-store shoe chain, has been put up for sale by its owners, while Dolcis, a rival chain, is in talks to get emergency financing. Faith Shoes, owned by private equity house Bridgepoint, is thought to have struggled with difficult trading for months. Other stores on the watchlist for insolvency professionals include Mark One and Ethel Austin, the clothing retailers.

The Sunday Telegraph has learned that in a highly unusual step landlords have offered retailers discounts to their rent to prevent them from going bust. One insolvency executive said: "I've seen a couple of examples of this in the last week. This is the sort of thing that used to take three months to arrange, but it was getting done in three days. The landlords are just desperate to have somebody in the shops and are worried if they drain every drop from retailers they will be left without a tenant."

Insolvencies are expected to pick up through January. "In many cases the banks have paid the rents to take these shops through the sales," said another executive.

Meanwhile Irish retailer Bedeck, the Belfast-based homewares retailer, has bought six Ponden Mill stores after the retailer collapsed into administration earlier this month. Ernst & Young, the administrator, had already sold 33 of the 135 of Ponden Mill stores to Instore, the Poundstretcher owner.

The bad outlook comes as the sector gears up for its Christmas trading statement season. Next, the clothing retailer, will kick off on Thursday when it announces sales for the second half of its financial year up to Christmas Eve.

The chain has told the market that like-for-like sales will be down by between 1 and 3.5 per cent over the full year. Next, which launched its post-Christmas sale last week, is expected to say sales in the run-up were at the middle-to-lower end. "Sales leading up to Christmas were OK. It won't be a disaster," said an executive close to Next.

Majestic Wine, the wine and beer retailer, is also due to report this week. It is expected to have had a good Christmas.

However retail bosses are less concerned about Christmas sales than about consumer confidence. The chief executive of one household-name clothing retailer said Christmas was universally awful. However, he said of more concern is trading is likely to get even worse after the post-Christmas sales. "The question is, how quickly do things tail off?" he said.


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Borrowing costs for banks fell for the second week running after co-ordinated central bank action helped unfreeze the money markets. But the credit crunch continued to take its toll as banks offered big discounts to offload leveraged debt.

Interbank lending rates, used by banks to lend to each other, have been falling since early December after the Bank of England and other major central banks joined forces to inject billions of dollars into the financial system.

The three-month inter-bank rate for sterling loans dropped to 6.01750 per cent yesterday from 6.04625 per cent the day before. The rate has fallen steadily since 12 December, when the central banks announced plans to pump more than £50bn of three-month money into the system before the end of the year. The cost of borrowing three-month euros and dollars also fell. Banks are still struggling to offload debt for leveraged buyouts that is stuck on their balance sheets after investors boycotted the loans as fear gripped markets. Major banks such as Citigroup and Goldman Sachs were reported to be offering discounts of up to 10 per cent to clear a $231bn backlog.

"The market can absorb all of these deals. It is a question of time," John Eydenberg, Deutsche Bank's head of leveraged finance for the Americas, told the news agency Bloomberg.

The Bank of England, the US Federal Reserve and their European and Swiss counterparts announced their unprecedented concerted action on 12 December in an attempt to restore confidence to the money markets. Lending between banks had frozen as banks worried about counterparty risk caused by potential losses from the sub-prime crisis. The central bankers took the joint action because they were worried a lack of credit would cause the turmoil in financial markets to pull the world economy into recession.

But money market rates have not fallen back to the levels of July, before rising defaults on US sub-prime loans rocked confidence in the debt markets that had sprung up during years of low interest rates. Concerns continued to haunt the financial sector yesterday as predictions of further big write-downs by US banks hit Britain's banking stocks.

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Company insolvencies are forecast to rise sharply this year as the chill wind from the financial crisis hits businesses in the wider economy. Smaller companies are likely to suffer most because of a slowing economy and increasing costs to borrow in a deteriorating business environment following the credit squeeze.

Insolvencies are forecast to rise to 13,492 next year – an 8.3 per cent increase on this year – the highest annual rate since 2003, when the economy was suffering from the aftershocks of the dotcom crash, according to Euler Hermes, the world’s leading insurer of credit taken on by companies.

Fabrice Desnos, chief executive of Euler Hermes’ UK arm, said: “The problems in the markets started out as very much a financial crisis with no implications for the real economy, but now we are seeing serious consequences for businesses in a range of sectors.

“The expected slowing of the economy next year and the rising cost of finance is a big factor, but we are also seeing an increase in late payments by companies, for example, to suppliers, which is an early sign of insolvencies to come.

“According to our latest figures, payment delays are close to five-year highs, with companies on average 22 days late to pay a supplier or other trade creditor. However, it must be stressed this is against a backdrop, until the summer, of a very benign economic climate.”

Euler Hermes warns that the construction and services sectors may be the biggest casualties. It forecasts economic growth to slow from 3.1 per cent last year to 2.0 per cent this year.

A separate survey by Euler Hermes of 300 finance directors reported the rise in payment delays, an indicator of potential trouble. Martyn Gregory, corporate finance partner at the accountants Deloitte & Touche, said: “Smaller companies are more vulnerable to tougher credit conditions, partly because they are more highly geared. The Bank of England believes that the ratio or debt to assets is about 75 per cent for small firms, twice that for large companies.”

Ian Stewart, associate director of research at Deloitte, added: “Smaller companies are more dependent on debt and on the UK economy than their larger peers. The implication is that tighter credit conditions and slower UK growth will hit smaller firms harder than larger businesses. Distress in smaller firms may be the first sign that the credit crunch is really biting in the corporate sector.”

A report from the Institute of Credit Management, conducted by the Credit Management Research Centre, warns that one in 50 businesses will be insolvent within two years. Professor Nick Wilson, chair in credit management at Leeds University Business School, the author, said: “The relatively high levels of indebtedness in the corporate sector coupled with recent interest rate increases and a decline in business confidence suggest that corporate insolvencies are set to increase by more than 20 per cent in the next two years.”

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A record number are heading for bankruptcy in the New Year after racking up huge liabilities over the festive period.

According to accountants KPMG, 130,000 people will either be declared bankrupt or take out individual voluntary arrangements, which allow people to repay banks and credit card firms a portion of their debts then start again with a clean slate.

In 2007 the comparable figure was just under 110,000.


Rising mortgage payments and sky high credit card bills lie at the root of the problem.


Yet impending difficulties with the household finances have done little to discourage millions from hitting the sales.


Figures compiled by the Brent Cross centre in London, one of the nation's busiest malls, revealed shoppers spent £800 a second on December 27.


Lenders, meanwhile, are being far more cautious when extending credit. Those already caught in the downward debt spiral, who cannot make ends meet without consolidating old loans or moving debt on to new low interest credit cards, may be tipped towards insolvency.


Mark Sands of finance experts KPMG said: 'It has been very easy in the past to borrow new money, and extra credit has been a lifeline for people already in debt, with consolidation loans, second mortgages, a new credit card.


'In the year ahead those lifelines are not going to be there for many people. Applications for new cards are being rejected 50% of the time, up from about a third before the start of the credit crunch.'

High interest rates are also being blamed for borrowers' woes. Mr Sands said that homeowners coming off cheap, fixed rate mortgages in January face rocketing repayments, for example around an extra £400 a month to £1,390 on a £150,000 loan.

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They are now responsible for 60 per cent of petitions to wind up companies, up from 58 per cent last year and just 42 per cent in 2001, according to research from accountants UHY Hacker Young.

Research carried out by the firm reveals that HMRC is taking an increasingly hawkish approach towards businesses who owe it tax or national insurance contributions.

UHY Hacker Young say that since HMRC lost its status as a preferred creditor in 2003 it has been quicker to close down companies who have fallen behind with payments.

Preferred creditor status gave HMRC access to the assets of an insolvent business ahead of other creditors.

Edward Cook, partner at the firm’s Manchester office, explains that HMRC is now clamping down on companies who have fallen behind with payments much earlier and more frequently.

“They want their money and if this means jobs have to be lost then so be it,” Cook says.

He adds that whilst companies will generally have built up a good working relationship with their other creditors, that will allow them to negotiate a standstill on payments, it is now almost impossible for them to establish that kind of relationship with the taxman.

“HMRC won’t show any hesitation in pulling the plug if it thinks a company won’t be able to repay them,” Cook adds.

Creditors can expect to receive far less for the business assets of a company forced into compulsory liquidation than if the company had been wound up voluntarily or entered Administration with a pre-pack sale of the business as a going concern.

Cook says that forcing a company into compulsory liquidation should be the very last resort.

In his experience creditors can generally recover a higher proportion of the money owed to them if they can come to an agreement with the directors, or if they can persuade the directors to sell the business as a going concern, usually through administration.

Cook believes that allowing a business to continue to trade and giving an administrator time to market a business as a going concern will mean that potential buyers will value the business more highly.

“These figures suggest that HMRC is often too quick off the mark to wind up a business,” Cook concludes.

He says that if a company does fall behind on its tax or VAT payments it will need to act quickly to negotiate an affordable repayment plan with HMRC.

“Company directors who can’t come to a workable agreement with the taxman, or who break the terms of an agreement will find that HMRC will be very quick to push the button on their business,” Cook warns.


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A predicted golden age for distressed debt hedge funds has so far failed to materialise in spite of the global credit crisis, but 2008 should be their year.

"You ain't seen nothing yet ... It's going to be huge," said one funds of hedge funds executive who declined to be named. "The tea leaves are not difficult to read."

After the start of the credit crisis this summer caused by the U.S. subprime meltdown, and after subsequent turbulence in equity and bond markets, a number of funds of hedge funds have again turned to distressed investing, a cyclical strategy that tends to do well when times are tough for everyone else.

Distressed funds look to buy the discounted bonds, loans or other debt of firms that have defaulted on debt payments or are set to enter bankruptcy or financial restructuring and bet they can weather the storm and earn strong returns from a turnaround.

Given that a prolonged period of ample liquidity and easy borrowing conditions is over and many banks are stuck with debt they are keen to get rid of, distressed funds, which have had slim pickings in recent years, should be coming into their own.

The problem is that these opportunities have so far failed to emerge -- in part because corporate defaults remain so low.

According to Moody's Investor Service, the global "junk" bond default rate was at a 26-year low of 1 percent in November.

"As it stands, it's a bit precipitous to suggest there are lots of opportunities," said Tim Gascoigne, a fund of hedge funds manager at HSBC Alternative Investments.

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The proportion of households paying more than 20pc of their gross salaries on mortgages and other debts is now higher than it was in 1991, amid the last housing crash.

The revelation comes in the Bank's Quarterly Bulletin, which also showed that the proportion of households facing trouble maintaining payments is at the highest level for almost 15 years. It underlines the struggles families are facing, with interest rates having touched a peak of 5.75pc earlier this year.

Although the Bank has now cut the cost of borrowing by a quarter percentage point, an increased number of families are expected to be hit by higher mortgage costs in the wake of the credit crisis on financial markets.

The Bank's report said: "A slightly higher proportion of mortgagors in the 2007 survey devoted a relatively large share (more than 20pc) of their pre-tax incomes to debt service than was the case in the 1991 [survey] when nominal interest rates were over 10pc."

However, the Bank indicated that it was reassuring that, meanwhile, the number of people reporting problems paying their mortgage was still lower than in 1991.

The report also highlighted the plight of those who are not yet on the housing ladder. It said that a fifth of renters with unsecured debts on credit cards and overdrafts said their debts were now a "heavy burden" - a record level.

Meanwhile, the flow of money into the world of commercial property has turned negative for the first time in many years as investors flee the troubled sector, the report shows.

The Bank raises particular alarm over the state of the office building market. It reports that returns from commercial property have dived into negative territory - and warns that losses from the sector could worsen even more in the coming months.

In its comprehensive look at markets, the Bank also indicates that the turmoil in the City's money markets can now officially be classified as a credit crisis, with banks increasingly concerned about the state of each other's balance sheets.

However, it said one of the biggest worries facing the markets was the knock-on effect of a crash in the commercial property sector.

"A particular concern among contacts related to the position of funds which invested exclusively in commercial property," it said. "UK property funds recorded net redemptions in October from both retail and institutional investors. In the same month, commercial property prices fell sharply in the United Kingdom and returns on commercial property slowed significantly.

"To the extent that commercial property funds became forced sellers of their assets, this could potentially further undermine returns."


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HER Majesty’s Revenue & Customs (HMRC) is taking an increasingly aggressive stance against businesses that fall behind with tax payments, according to research from Wrexham-based accountancy firm UHY Hacker Young.

Its findings show HMRC is now responsible for 60% of petitions to wind up companies, up from 58% last year and just 42% in 2001.

UHY Hacker Young said since HMRC lost its status as a preferred creditor in 2003 it has been quicker to close down companies that have fallen behind with payments. Preferred creditor status gave HMRC access to the assets of an insolvent business ahead of other creditors.

Anthony Thomas, partner UHY Hacker Young said, “HMRC is now clamping down on companies who have fallen behind with payments much earlier and more frequently.

“They want their money and if this means jobs have to be lost then so be it.”

“While companies will generally have built up a good working relationship with their other creditors that will allow them to negotiate a standstill on payments it is now almost impossible for them to establish that kind of relationship with the taxman.

“HMRC won’t show any hesitation in pulling the plug if it thinks a company won’t be able to repay them.”

However, according to the North Wales firm, creditors can expect to receive far less for the business assets of a company forced into compulsory liquidation.

Mr Thomas added, “Forcing a company into compulsory liquidation should be the last resort.

“In our experience creditors can generally recover a higher proportion of the money owed to them if they can come to an agreement with the directors, or if they can persuade the directors to sell the business as a going concern usually through administration.”


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Banks are being accused of pressuring customers who have financial problems to take out expensive loans to try to ease their debts, the BBC has learned.
Some banks are repeatedly telephoning customers to try to get them to take out costly loans, against the advice of debt charities.

Citizens Advice said it had received many complaints about the increasingly aggressive tactics being used.

Banks say interest rate charges are up to them.

Continually telephoned

The BBC's Breakfast programme has discovered some customers who have an agreed debt repayment plan with a debt advice charity are being put under pressure to take out loans, sometimes at a higher interest rate than they are already paying.

One HSBC customer, Simon Chandler, said that even though he had declined the bank's offer of a "managed loan", they had continually telephoned him to try and make him change his mind.

The interest rate on the managed loan is 13% - double what he is paying at the moment.

He said: "I have had multiple letters from HSBC saying they want to help people in financial difficulty - when clearly they don't.

"HSBC have agreed that the amount I can repay each month is acceptable. But the only way they will accept that repayment is if I enter in what they call a managed loan."

In a statement HSBC said: "As a responsible lender HSBC only offers a managed loan to customers when all other lending options have been exhausted. Mr Chandler's loan is flexible and affordable.

"Now back in full time employment he can make additional monthly payments when possible and his interest rate can be revised after a period of good repayment - typically just one year."

Citizens Advice (CAB) said it was aware of many cases in which people in debt have offered to make payments where the bank has asked for more than they can afford.

In some cases, customers had asked their bank to deal with a debt advice charity, yet they were still being sent aggressive letters and receiving pushy phone calls.

Aggressive letters

Peter Tutton from CAB said: "We see a lot of cases of people coming in who have tried to talk to their banks about arranged payments and they haven't been listened to, and they have been asked for more than they can afford.

"Typically people find that, even after they have been dealing with us, they have found that they have been continued to be written to. They get aggressive letters and phone calls from their lenders."

The banks' organisation, the British Bankers' Association (BBA), said banks were happy to work with debt advice charities.

However, it said they have to make their own judgement about the interest rate they charge and how much someone can afford.

Eric Leenders from the BBA said: "The work that banks do with intermediaries like money advice trusts are essentially negotiations - they are not necessarily conclusive."



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The full scale of the shutdown in debt markets around the world has been laid bare by figures showing that growth in corporate bond markets almost ground to a standstill in the late summer.


The Bank for International Settlements reveals today that companies in the UK have cut back on their borrowing at the fastest rate in over three years. In Germany, Europe's biggest economy and the world's biggest exporter, businesses paid back more than they borrowed for the first time since the 1980s.

The figures, published in the BIS's quarterly survey of financial markets, come amid growing speculation that Bank of England deputy governor Sir John Gieve may be asked to resign for his part in the Northern Rock fiasco. The Bank has maintained that the health of London's money markets has not been considerably worse than in other currencies, defending its comparatively stern stance on pumping extra cash into the system.

However, the BIS - an international group of central bankers - said that, in fact, the UK "saw some of the sharpest increases [in interbank lending rates] in this period, as illiquidity problems at the lender Northern Rock became more and more evident".

The BIS said that although the crunch started in the money markets, where banks lend to each other, it is now preventing companies from borrowing and investing as heavily as they have done in recent years.

It said the value of bonds issued by businesses in the international debt markets halved between the second and third quarters of the year. The $396bn (£195bn) issued was 4pc lower than the same period last year - the first fall in two years - as banks led the charge of businesses out of the credit markets.

In Germany, whose banks have been some of the biggest victims of the sub-prime mortgage crisis in the US, some $20bn more was paid back than borrowed.

The flight from borrowing was even more dramatic in emerging economies.

The BIS said it would not be clear until well into next year how much money banks and investors stand to lose as families in the US housing market default on their mortgages.

It said one of the most important developments during the crisis had been the role hedge funds are now playing in supplying extra cash to the market.


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The profession is set to weather the storm of the credit crunch, with firms well-placed to avoid the culls and cutbacks elsewhere in the City.

‘The outlook is healthy. We are not planning any job losses and are continuing to recruit. We are hungry for people,’ a KPMG spokeswoman said. Firms are especially looking for people in tax, they indicated.

A survey of 2,000 employers conducted by recruitment consultants Manpower showed that the number of companies expecting to hire staff in the first quarter of 2008 was still greater than companies expecting to cut jobs, but that the margin between the two was the narrowest it had been for six years.

The Big Four are planning to match the graduate recruitment levels of previous years, taking in approximately 1,000 students each.

Other businesses in the Square Mile are expected to slash headcounts for the first time since 2001, with investment banks set to suffer the heaviest losses. UBS cut 1,500 jobs in October and Dresdner Kleinwort is planning to reduce headcount by 200 before 2008.

So far accountants have managed to avoid the credit-crunch fallout by focusing on emerging markets.

The firms also said this week they were expecting a growth in insolvency work as the credit crunch hit and businesses suffered. ‘We’re expecting a material increase in business,’ said Mike Jervis,.


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Scotland's oldest ski centre has been taken over in a management buy-out, according to its website.
Liquidators had been appointed for Glencoe Mountain Resort, which took over White Corries when it went into receivership about three years ago.

Along with Scotland's other ski centres, Glencoe has suffered from a lack of consistent seasons because of poor snow falls.

The resort's website said it was open for business.

Invocas were appointed provisional liquidators. It said its primary aim was to safeguard the business.

Charlotte Wright, Highland and Islands Enterprise's area director in Lochaber, said the agency would do whatever it can to help keep the Glencoe centre open.

She said: "Generally, we can assist if there is the investment in a business.

"If there is a new buyer, or there is a kind of rescue situation that the current owners can come up with that involves further investment, then we may be able to assist with that in terms of capital."

Originally known as the White Corries, it became Scotland's first commercial ski area with the construction of an overhead ski lift in 1956.

The resort covers 494 acres on the Meall A'Bhuiridh Massif and has seven lifts and 19 runs.



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The number of companies becoming insolvent in 2008 is set to rise to the highest level in five years, says new research.

An anticipated 17,697 UK businesses will fail next year, up nine per cent on the expected level for 2007, according to accounting and business advisory firm BDO Stoy Hayward.

The increase in the number of businesses forecast to go to the wall comes amid a prediction the ongoing credit crunch and higher interest rates will increasingly bite over the coming months.

BDO's forecast comes despite the quarter-point interest rate cut implemented by the Bank of England last week, in response to signs of an apparent economic slowdown.

Today's report anticipates economic growth will slow to 1.8 per cent in the period
ahead.

As a result business failures are predicted to rise even further in 2009, when business insolvency rates are expected to increase to 18,142 – a level not seen since the dot.com bubble burst.

Manufacturing is forecast to be among the sectors worst hit, with a weakening world economy, tougher international competition, high oil prices and a decline in production expected to contribute to business failure rates in the industry rising from 1,887 in 2007 to 1,994 in 2008.

A greater number of retailers are also expected to go bust next year, when consumer spending is expected to fall sharply. BDO claims interest rate hikes next year will encourage shoppers to save rather than spend.

Expectations of a housing market slowdown are also likely to lead to an increase in the number of construction firms which fail, largely as a result of delays to development projects, the research suggests.

Meanwhile insolvency rates among service sector firms are forecast to increase by 15 per cent year-on-year in 2008, with the majority of failures set to come from the financial services industry – the most vulnerable to the impact of the ongoing global credit crunch.

Commenting on the figures, Shay Bannon, business restructuring partner at BDO Stoy Hayward LLP, said: "Businesses in most sectors will need to prepare for a more challenging economic environment as the global credit crisis kicks in."

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UK firms are preparing for a busy year of insolvencies in 2008, as they fear the credit crisis will deplete the cash reserves which normally would have saved troubled businesses going bankrupt.

Industry experts anticipate insolvencies will rise by as much as 10% as banks increasingly take a more conservative approach to lending and other investors such as private equity groups and hedge funds, which have saved troubled firms in the past and are now taking a more cautious view on risk.

The insolvency department at PricewaterhouseCoopers (PwC) is bracing for a busy new year, The Times reports. ‘We’re expecting a material increase in business,’ Mike Jervis, a partner at PwC’s London office, said. ‘If you gauge from the last economic downturn between 2001 and 2002, there could be a 10% increase in corporate insolvencies.’

Phillip Davidson, KPMG head of restructuring advisory, said normal trading conditions had been suspended for the last few years. ‘Companies have been kept alive artificially, but now they’ll be caught up,’


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Corporate insolvencies are set to hit seven-year highs in 2008 as weak businesses face a potential treble whammy of rent demands, stricter auditing and downbeat consumer spending at Christmas.

Insolvency and restructuring professionals are braced for the sort of level of business failures last seen in 2000-2001, when the dotcom boom turned to bust, and some are recruiting more staff to help cope.
All types of corporate insolvencies - chiefly administration, for firms that can be rescued, and liquidation, for those that cannot - could rise by between 20% and 25% next year, one senior professional source told Financial Mail.

Meanwhile, crumbling house prices are likely to be highlighted in Thursday's November survey from the Royal Institution of Chartered Surveyors.

Last week's quarter-point cut in the Bank of England's official interest rate to 5.5% is thought to have been triggered in part by weakness in house prices, though analysts were sceptical as to whether it alone would be enough to stop the rot.

But while the property market is being shaken by the global credit crunch, there are fears that some companies are already doomed.

According to insolvency insiders, three immediate obstacles threaten the survival of weaker firms.

First, business faces the feared slowdown in consumer spending as households feel the pinch from the credit squeeze - not least because falling home values make them feel poorer - and cut back on spending.

Second, December 25 is the next 'quarter day' on which business rents traditionally fall due. Poor sales in the run-up to Christmas would make this a testing time for retailers.

A third factor is auditing - public companies whose financial year ends on December 31 will need to have their accounts approved by April 30 and auditors are reportedly getting tough on what constitutes a 'going concern'.



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Accountants predict rise in insolvenciesPeter Stiff
The country’s leading accounting practices are expecting a rush of insolvency work in the new year, amid fears that the credit crisis will dry up the “wall of cash” that in the past has saved troubled businesses from going bust.

Industry experts predict that the number of insolvencies will rise by as much as 10 per cent now that banks are taking a more conservative approach to lending and other investors, such as private equity groups and hedge funds, which have saved troubled firms in the past, are taking a more cautious view on risk.

The insolvency department at PricewaterhouseCoopers (PwC) is braced for a busy new year. “We’re expecting a material increase in business,” Mike Jervis, a partner at PwC’s London office, said. “If you gauge from the last economic downturn between 2001 and 2002, there could be a 10 per cent increase in corporate insolvencies.” He believes that the department’s business will pick up by 5-10 per cent in the first quarter of next year and gather pace throughout 2008.

Phillip Davidson, KPMG’s head of restructuring advisory, said: “There has been a suspension of normal trading conditions in the last few years. Companies have been kept alive artificially, but now they’ll be caught up.” He added that companies that had been given a lifeline by their banks would struggle to refinance their debt, against a backdrop of higher interest rates and worried lenders. He did, however, note that funding would still be available for the right companies, even if economic conditions got worse.

The insolvency business has, on the whole, slowed this year. On Friday Begbies Traynor, the country’s biggest independent insolvency practice, said that full-year operating profit would be 20 per cent lower because of a lack of insolvency work over recent months. However, Ric Traynor, the company’s founder and executive chairman, believes that the number of corporate insolvencies could double over the course of 2008, from the present level of about 15,000 a year.

According to Stephen Akers, a recovery and reorganisation partner at Grant Thornton: “Whereas before maybe seven out of ten companies in difficulties could be restructured, the number could fall to four out of ten as less options are available. Businesses in difficulty can limp on, but in another couple of months they’ll be out of ideas. Raising finance is incredibly difficult and by late March, early April the statistics will demonstrate the effect of the credit crunch.”

The insolvency business typically runs up to six months behind general market movements because of the time between a company telling its bank that it has problems to the day that it becomes insolvent.


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Many young Britons are committing financial suicide with a high-spending lifestyle they cannot possibly afford, experts have warned.



They are pursuing the lifestyles of A-list celebrities with only a Z-list income, often displaying a reckless attitude to borrowing, say the researchers.

Many young adults do not view bankruptcy as shameful, instead seeing it as a tool to escape large debts amassed though buying fashionable clothes, going on exotic holidays and socialising.

"The use of credit to meet everyday expenditure was a way of life," according to the report of the study.

"For some the line between needs and wants was virtually indistinguishable."

Bank of England figures show borrowing on overdrafts, personal loans and credit cards has surged in recent weeks.

It is not clear whether this is a sign of feckless spending or evidence that many are being forced to borrow more simply to make ends meet.

The latest research was carried out by the Personal Finance Research Centre at Bristol University and Commissioned by Standard Life Bank.

The team said: "Young adults seemed especially susceptible to strong pressures to consume."

Researchers found that parents are increasingly being forced to put their own finances on the line in order to bail out their adult offspring. This can involve borrowing against their homes.

Twenty years ago, going bust was a mark of shame and a demonstration of failure.

However, the researchers found: "A core minority saw debt consolidation and insolvency as easy ways out of problem debt."

Chief executive of Standard Life Bank, Anne Gunther, said: "We are not only seeing people trying to 'keep up with the Joneses' but also aspiring to a lifestyle more akin to A-list celebrities.

"Credit is not only freely available but considered a way of financing lifestyles rather than reflecting need.

"A seismic change in mindset is required to begin to unwind the chronic debt issues we face in the UK.

"Pinning your hopes on housing equity or thinking that insolvency is the easy way out is financial suicide."



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Borrowers who believe rising house prices or insolvency will solve their debt problems risk "financial suicide", a report has warned.
The Personal Finance Research Centre found young adults relied increasingly on borrowing for day-to-day spending.

The report said parents also felt pressured to borrow to provide for their children.

But it warned against a mistaken belief that rising house prices or insolvency provided an easy route out of debt.

'Disconnect'

According to the research, increased expectations about living standards, coupled with the ready availability and relative cheapness of credit, mean many borrowers have little desire to seek an alternative.

The report said using credit to meet everyday expenditure was a way of life for many young adults, with the difference between needing something and merely wanting it often "virtually indistinguishable".

The research also highlighted what it called a "disconnect" between the perceptions and reality of potential debt solutions.

A core minority of young adults see debt consolidation and insolvency as offering easy routes out of problem debt.

And all age groups see property as the ultimate solution to future financial needs.

'Seismic' change

The chief executive of Standard Life Bank, which commissioned the research, said consumer attitudes to debt had changed "dramatically" in recent years.

"Credit is not only freely available but considered a way of financing lifestyles rather than reflecting need," Anne Gunther said.

"A seismic change in mindset is required to begin to unwind the chronic debt issues we face in the UK.

"Pinning your hopes on housing equity or thinking that insolvency is the easy way out of debt is financial suicide," she added.

Standard Life is calling for current initiatives on financial education and capability to be reinforced and strengthened.

The Consumer Credit Counselling Service (CCCS), a debt advice charity, pointed out that although the amount of consumer debt has risen in recent years, only about 7% of borrowers get into financial difficulty.

It also wants a more coordinated approach from government, regulators and individual providers.

"Borrowing is a sensible way for 93% of people to mange their financial lives," said CCCS chairman Malcolm Hurlston.

However he stressed the importance of seeking professional help as soon as debt problems arise.

And he agreed the assumption that an increase in property prices would act as a "get out of jail card" was worrying.

In fact, he argued that owning a home could leave some borrowers at greater risk of debt.

"It's time to put an end to the old shibboleth that buying a house is always good for you," he said.

"A large proportion of the people who turn to us for help are those who have taken out mortgages which they cannot afford, leaving them highly vulnerable to interest rate volatility," he added.

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