The number of people going bankrupt in England and Wales has hit another record high during the first three months of 2005, official figures show.

The Department of Trade and Industry said the number of individual bankruptcies reached 10,091.

The number of bankruptcies was 24.5% higher than a year ago and up 2.8% on the previous quarter.

Worries about debt levels have been growing and accountants KPMG said a "black cloud of debt" hung over the UK.

Struggle

Company liquidations fell 1.3% on the previous quarter to 2,900 the DTI figures showed, a drop of 7.4% on the previous year.

Total individual insolvencies reached 13,229 in England and Wales during the first quarter.

Of these, 3,139 were Individual Voluntary Arrangements (IVAs) - an alternative to bankruptcy which allows debtors to come to an agreement with their creditors. The number of IVAs was up 40.1% on the same period in 2004, but down 2.1% on the previous quarter.

The level of consumer debt broke through the £1 trillion level last year, and there are growing worries at the number of people who are getting into major difficulties with their finances.

Accountancy firm KPMG said that the latest figures meant 37,886 people have been made bankrupt in the year to 31 March, a 30% increase on the previous 12 months.

"These figures... do prompt the question of where this is all going to end," said Steve Treharne, head of personal insolvency at accountancy firm KPMG.

"It is interesting that these statistics are released just over a week after official government figures reveal there has been a 35% increase in mortgage possession actions on the same period last year.

"If the current trend continues, we could see annual rates of 60,000 bankruptcies within the next three years."

Bankruptcy 'more attractive'

The five interest rate rises since late 2003 have been cited as one reason for the surge in the number of bankruptcy cases.

And some experts have also argued that recent changes to bankruptcy laws have made people more willing to choose bankruptcy as a way of sorting out their finances.

Under the Enterprise Act 2002, since April 2004 bankrupts in England and Wales have been able to come out of bankruptcy faster than previously.

KPMG said that more than three quarters of bankruptcy cases came from people declaring themselves bankrupt rather then being forced into it, a move it said was down to the changes in the law.

"In many people's eyes, this Act made bankruptcy a far simpler and more attractive proposition and removed some of the stiffer penalties previously meted out to bankrupts in the UK," Mr Treharne said.

However, Sue Edwards, senior social policy adviser at Citizens Advice, said easy access to credit was to blame for the rise, rather than changes in the law.

"People are borrowing too much, and lenders are making poor lending decisions," she said.

VOCABULARY:

individual voluntary arrangement –(IVA) - индивидуальное добровольное соглашение: договор, который заключает неплатежеспособное лицо со своими кредиторами и по которому данное лицо обязуется в течение некоторого периода времени (обычно 5 лет) выплачивать определенную сумму долга, а кредиторы соглашаются не предпринимать каких-л. действий по аресту его имущества, доходов и т. п.

Enterprise Act 2002 – комплекс реформ относительно неплатежеспособности

 

 

65. Bad Debts Build up at Lloyds TSB

Lloyds TSB has warned of rising bad debts among its customers, but expects to unveil "satisfactory" profits for the first six months of the year

The company said higher charges at its retail arm, as a result of rising debts, would offset a fall in charges on the corporate side of the business.

The news comes against a backdrop of rising bankruptcies with UK debt breaking through the £1 trillion mark.

Meanwhile, consumer spending has slowed as consumers fret about their finances.

Experts have blamed the current consumer slowdown on rising interest rates and concerns about the strength of the UK housing market.

The news has prompted investors concern that the banking sector could suffer from stagnant revenue and rising bad debts.

Debt concerns

In May, rival bank Barclays warned bad-debt provisions were rising ahead of forecasts as a result of rising credit card debts.

Lloyds said it had made greater provision to cover consumer bad debts, along with its rivals, but lower company debts would offset this.

"We are continuing to make progress against our objective to deliver sustained earnings growth, despite signs of a slowing consumer environment in the UK," said chief executive Eric Daniels.

It added its decision to concentrate on existing customers would result in healthy levels of lending and deposit growth.

In March, the UK's biggest bank posted a 20% fall in full year pre-tax profits from the previous year - although 2004's figure had been boosted by the £1.2bn sale of various overseas businesses.

Lloyds, which also owns the Cheltenham & Gloucester and Scottish Widows brands, has around 15 million personal banking customers and operations in 27 countries across the globe.

 

66. Poor Planning

WHO said the planned economy was a thing of the past in Central Europe? The Czech government is working on a scheme to spend 265 billion korunas ($7 bil­lion) to revive the flagging economy. Around 40 billion korunas of this would go to some big unnamed companies in financial trou­ble. They employ many people, and Miroslav Gregr, the industry minister and the plan's architect, reckons they might stand a chance with a large dollop of aid.

Many of the firms are struggling to re­cover from a brutal two-year recession in 1997-99 that followed a currency crash. But their problems go back further, to a flawed programme of voucher privatisation in the early 1990s, which resulted in scattered own­ership and a lack of corporate discipline. Straggling conglomerates ignored restructur­ing and became deeply indebted, abetted by soft lending by the big state-owned banks. In the end, so many companies could not pay their debts that the banks almost collapsed. The resulting credit crunch caused the reces­sion and a sharp rise in unemployment, which is still three times the 1997 level.

Fortunately, the Czechs have learnt some lessons from that collapse. Most of the banks have been sold to foreigners, so com­panies can no longer struggle along on soft credit. Bankruptcy laws have been beefed up, too. Between 1989 and 1996, just three firms went bust. Since the currency crash, thousands have gone to the wall.

Others have been restructured over the past two years by the state "hospital bank", Konsolidacni Banka. Helped by western ad­visers, it has slimmed many state-owned firms and split them into sellable bits. Parts of Skoda Pizen, a troubled engineering group, were sold to western firms last year, while Germany's Siemens has been eyeing ckd, a tram-maker. Even Zetor, which makes tractors, looks likely to be sold soon. A symbol of communist pride, it returned to operating profit after being forced to build tractors only when it had received firm or­ders. These firms are recovering mainly be­cause lack of cash forced them to restructure.

Mr Gregr's scheme may now hand them money and reverse that process. Many Czech companies are dead on their feet. He aims to get them walking. This is not his first attempt: he launched a similar scheme in 1999 to rescue more than 30 big, sickly firms. Lack of cash and protests from the European Commission meant that plan was watered down, and eventually covered just eight firms. A couple have since been sold, but most still languish in state hands. The betting in Prague is that these are the companies that Mr Gregr now wants to throw more money at, along with another 30 or so that long ago ceased paying their debts.

In fact, companies with potential do not need Mr Gregr's plan. Money is less of a pro­blem than it was, because foreign invest­ment has started flooding into the country. Until the currency collapse, the Czechs gen­erally scorned foreign investment, preferring to keep big companies in local hands. Since then, a package of investment incentives and some big privatisations have brought foreign cash rolling in. Big investors include television makers such as Japan's Matsushita, Philips, a Dutch electrical group, and car-parts makers such as Germany's Bosch. These have been drawn to the Czech Repub­lic by its clever, cheap workers and its prox­imity to the EU. Some $4.5 billion, or nearly 10% of gdp, flowed in last year. Another $8 billion will arrive if the government suc­ceeds in selling a 64% stake in cez, the main electricity generator (though the process was held up this week by the threat of lawsuits from spurned financial advisers).

This foreign money is turning industry round. Foreign-owned firms now account for nearly half of Czech exports, and were responsible for almost all of the 17% surge in exports last year. And although total indus­trial production went up by a more modest 5%, it exploded in industries with heavy for­eign investment: transport production went up by 45%, for example, fuelled by the half-million cars built by Volkswagen-owned Skoda (no relation of Skoda Pizen).

Yet Mr Gregr wants to resuscitate the very bits of Czech industry that foreigners are avoiding. Why bother? He claims that "the market on its own cannot resolve the situation." With the budget deficit running at 9% of gdp, though, he may yet be refused the cash to turn his grandiose vision into reality. Perhaps he will be forced to let the market do its work after all.

VOCABULARY:

flagging economy – экономика, находящаяся в неблагополучном состоянии, темпы роста которой снижаются

scattered own­ership – раздробленное право собственности, которым обладает множество людей

 

soft lending – мягкие, благоприятные условия кредитования по низкой процентной ставке

 

credit crunch – сокращение (сжатие) кредита; жесткие условия кредитования по высокой процентной ставке; ограничение доступа к кредиту

 

Siemens has been eyeing CKD… - Компания Сименс присматривается к компании СКД, т.е. рассматривает возможность её приобретения

 

be dead on one’s feet – быть истощенным, «еле стоять на ногах»

 

 

67. Turkey Outlines New Package of Radical Structural Reforms