The number of companies that went into liquidation in the first quarter of 2013 fell by 15.9 per cent compared to the same period a year ago, according to the Insolvency Service.
Personal insolvencies also dropped by 12 per cent in the first quarter of 2013, down to a five-year low of 25,006 for the quarter.
If this trend continues for the rest of the year, it could mean the total is below 100,000, which would take the annual total down to the lowest level seen since 2005.
Analysts believe a combination of record low interest rates and healthy employment levels have combined to lead to an improvement in the figures.
However, behind the numbers many people are still struggling, according to Mark Sands, the head of personal insolvency at RSM Tenon.
He said: "The picture isn't as rosy as the figures suggest for many who have remained in employment, even if they have permanent jobs. Rising costs, frozen salaries and wage cuts can have an impact on family finances, especially if they were in debt before the credit crunch."
There were 3,619 compulsory and voluntary company liquidations in England and Wales in the first three months of 2013, down 5.3 per cent on the previous quarter.
Just 0.7 per cent or one in 154 of all companies went into liquidation, down from a 1993 peak of 2.6 per cent and a 25-year average of 1.2 per cent.
Experts are unsure as to why company and individual insolvencies have fallen so sharply during a period when the economy is still struggling.
Matthew Chadwick of the accountancy firm BDO said: "The latest figures continue to defy logic. The lowest level of personal insolvencies since 2008 is difficult to explain against a broader backdrop of limited job creation, heightened unemployment, raised inflation and low wage growth."
Some believe that low interest rates are helping to keep businesses and individuals financially afloat. Others think that the number of people on debt management plans has grown which is helping reduce the insolvency figures. Also, declaring bankruptcy is more expensive than taking on an individual voluntary arrangement so many people are choosing the cheaper option.
However, analysts believe it also indicates that the number of "zombie" companies – firms that are clinging onto survival – continues to grow.
Carl Bowles, insolvency specialist at CBW, said, “The reality is that a lot of companies now are the walking dead and should be buried rather than being allowed to go lurching on, damaging others as they go.
“Closing zombie companies allows the remaining profitable companies to flourish and reinvest, indeed the market share taken up by zombies is damaging the good companies.”
Personal liquidations fell to 25,006 in the period, a 12.9 per cent drop from the figure of 28,723 in the first quarter of 2012 and the lowest level since the first three months of 2008.
Individual bankruptcies fell from 6,919 in the final quarter of 2012 to 6,663 and there was also a fall in the number of people taking debt relief orders, down from 7,549 to 7,219 in the latest quarter. There has been a nine per cent fall in the number of people taking up debt relief orders in the last 12 months.
Individual voluntary arrangements went up slightly on a quarterly basis from 10,986 to 11,124. They were the only type of personal insolvencies that saw a rise on the previous quarter, though they are still down five per cent on an annual basis.
Bev Budsworth, managing director of The Debt Advisor said: “The fall in bankruptcies is good news although the decline has much to do with the cost of £700 which many find unaffordable. The numbers opting for Individual Voluntary Arrangements (IVAs) is steady at just over 11,100 for the quarter. The IVA is now recognised as a viable workable debt solution which is much needed to ensure that we can recycle those with serious levels of debt.”
There has been a gradual decline in the number of bankruptcies since debt relief orders were introduced in 2009. They are often seen as the easier option for debtors as they are aimed at people with lower amounts of debt but who are unlikely to be able to pay it off.
Experts say that low interest rates and unemployment not rising by as much as expected has helped keep insolvencies down.
Stewart Baird, director of SME investment company, Stone Ventures thinks that the relatively healthy figures do not necessarily give an accurate picture of the reality on the ground.
He said: “A relatively benign insolvency landscape should not be mistaken for an economy in a state of good health.
"What worries me is that the average liquidation rate over the past 25 years has been 1.2% of all active registered companies. Over the 12 months to the end of the first quarter, on the other hand, it was just 0.7%.
"Given the weakness of the economy, this simply doesn't stack up and could suggest the worst is yet to come.”
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