Shay Lettice, eastern region chairman of insolvency trade body R3, on the latest insolvency figures

OFFICIAL figures have revealed an 11% fall in personal insolvencies during 2011 but a 1.3% rise in business failures compared with the previous year.

The increase in corporate insolvencies is unsurprising given the challenging economic environment.

We have known for a while that many businesses are surviving but not thriving, operating as “zombies”, and that some would eventually have to fail.

Currently, insolvency numbers are low compared to previous recessions and we have not seen the volume of business failures that one might have expected during a downturn.

“What we appear to be experiencing is the calm before the storm. Indeed, if the economy is to recover, we must see some businesses fail to enable viable ones to thrive.

2012 is set to be a very difficult year and recent research by R3 indicates that SMEs, which are vital to economic recovery, are going to need more business support. For example, in the final quarter of 2011, 29% of SMEs nationally were experiencing a reduction in sales volumes, compared to only 6% of large businesses.

The decrease in personal insolvencies does not necessarily mean that individuals are better at dealing with their personal finances, rather it indicates the emergence of “zombie”debtors.

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Research carried out by R3 in November 2011 found that these individuals are able to stave off formal insolvency by servicing their debt but not reducing it. This points to the fact that many people are just hanging on financially. However, with wages remaining stagnant and utility bills rising, many will not be able to cope for much longer.

The official personal insolvency figures also do not show the number of people in informal debt procedures. We estimate that some 500,000 are in a Debt Management Plan and there are many more who are struggling without any help at all.

R3 has every reason to believe that 2012 is going to be tougher than 2011 and so those individuals facing severe financial difficulties should not delay in seeking professional advice.

Shay Lettice is a partner at Cambridge accountancy firm Peters Elworthy & Moore