DAS Failure Rate Still Increasing
4th November 2014
In December 2012and November 2013 we published our analysis of the performance of the Debt Arrangement Scheme.
Using data provided by the Accountant in Bankruptcy data on DAS we suggested an annual failure rate (based upon revocation data) was around 10.4% in 2012 and estimated it to be around 13.4% in 2013. These figures seem fairly low, but the average term (duration) of a DAS is long meaning that a large percentage of cases could be expected to fail to reach completion.
Our 2013 estimate appears to have been too high. The number of revocations in the second half of 2013/14 was lower than was estimated based upon the actual results of the first two quarters. Despite this, the case attrition rate still appears to have increased from around 10.4% to around 12.3% in the space of those twelve months.
We now have the AIB data to produce an up-to-date estimate for this year.
The following table has been produced by us using Accountant in Bankruptcy data. There may be some issues with some of the older data which you can read more about on the 2012 article (link above).
In the table above we estimate the total number of DPPs under DAS that currently exists using the approval, completion and revocation data from the official statistics. This methodology seems to be functional given that the AIB is now publishing its own revocation percentages which appear to connect accurately to the overall number of DAS cases that we report above.
It appears that there are currently around 14,744 active DAS cases running.
Revocation and Attrition Rates
The data above suggests that there were 14,311 DPPs in existence at the end of Quarter 1 of 2014/15.
427 DAS cases were revoked in the 1stquarter of 2014/15. Another 496 were revoked in the 2nd quarter. As per previous years, we assume that none of thequarter 2 revocations are for the new DAS cases set-up during the same quarterly period.
If we annualise the 923 revocations for the first half of 2014/15 we might estimate that 1846 DPPs under DAS will be revoked during the 2014/15 Accountant in Bankruptcy year.
We can then assume that 1846 of the 14,311 active cases which existed at the end of quarter 1 might be revoked during a full yearly period.
This equates to an annual failure rate of around 12.9%. This figure continues to increase year by year (10.4% in 2012, 12.3% in 2013).
How Many Cases Will Survive A 12.9% Drop-Out Rate?
We canproject a 12.9% annual drop-out (revocation rate) onto the existing Debt Arrangement Scheme case volume to establish the likelihood of a case reaching a successful conclusion.
This enables us to, for example, estimate how many of the 14,744 DAS cases running half-way through the 2014/15 year will reach a successful conclusion.
The long-term effect of cases being revoked on an ongoing basis is that longer DAS cases are considerably less likely to be successfully completed than shorter ones:
Using the 12.9%attrition rate previously identified it can be estimated that:
- About two thirds of three year DAS arrangements are likely to complete without being revoked.
- The average DAS is expected to run (per the AIB) for around seven years. A seven year DAS arrangement appears likely to be completed by fewer than four in ten of those that embark upon it.
- More than three out of four DAS schemes expected to run over a ten year term are likely to be revoked before being successfully completed.
What Does The AIB Say About This?
The Accountant in Bankruptcy is now reporting on revocation rates. This is a welcome development that will make the performance of the scheme more transparent.
According to their figures 3.1% of the total number of live cases that existed in quarter 1 of 2014/15 has been revoked during that quarter.
This rises to 3.4% of the total in the second quarter of this year. These figures connect well to the estimates we’ve produced above. For the purposes of comparison, in quarter 2 of 2013/14 the AIB records a much lower revocation rate of 2.9% for the quarterly period.
A factor that is pushing the revocation rate higher is that the AIB is now accepting a higher proportion of applications for DAS cases to be revoked. In quarter 2 of 2013/14 the AIB only accepted 56.3% of such applications, a figure which has now increased to 67.4%.
- Compared to informal debt management plans a failure rate of 12.90% is pretty good. We hear from reliable sources that some of the highly sales-orientated major DMP providers experience attrition rates of around 30% annually. We’re also however aware of other lower-volume DMP providers with attrition rates below 12.9%.
- The revocation rate for DAS does continue to worsen however. We’re witnessing a steady increase in the percentage of cases failures which currently shows no sign of abating. It’s worrying that, based upon current figures, an average-term DAS might have less than a 40% chance of being completed.
- A large part of the deterioration in the figures appears to relate to a greater inclination at the AIB to accept revocations requests. Many fewer are being rejected than was previously the case. This may represent a greater recognition within the AIB that a significant rate of drop-out will simply be part and parcel of such long-term debt solutions.
- As we have stated previously, the Scottish Government’s assumption that DAS will produce better returns for creditors than insolvency (protected trust deeds and sequestration) might not eventually be proven. This is especially the case given that creditors might now expect better returns from newer trust deeds than was previously the case.
- We point out that an increasing number of people are now successfully completing their DPP. For a relatively long-term debt solution that has gained massively in popularity only recently, it’s not surprising that these overall completion numbers still remain low overall. They are however increasing from quarter to quarter as the scheme matures.
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