Scottish Business Insolvency numbers show slight increase

24th January 2019

Accountant in Bankruptcy (AiB) today released official statistics reporting personal and company insolvencies in Scotland for the third quarter (October to December 2018) of 2018-19.

Scottish corporate insolvencies were up slightly on the same period a year ago with 209 recorded for the third quarter this year, eight more than the same quarter in 2017-18. This number included 129 compulsory liquidations, 80 creditors’ voluntary liquidations and 122 members’ voluntary liquidations. No receiverships were recorded in the last quarter.

The number of Scottish registered companies becoming insolvent or entering receivership increased in the third quarter of 2018-19, with 209 companies becoming insolvent compared with 201 in 2017-18 Q3. There were 122 members’ voluntary liquidations (solvent liquidations), down on the 129 in 2017-18 Q3.

Overall, corporate insolvency numbers in Scotland for the whole of 2018 were 21% higher than in 2017, and were at their highest level since 2012. The number of corporate insolvencies in Scotland fell by 10% in October-December 2018 compared with July-September 2018, and rose by 4% compared with October-December 2017.

Commenting on the Scottish Insolvency Statistics, Tim Cooper, Chair of R3 in Scotland, the insolvency and restructuring trade body said “It’s not especially surprising to see corporate insolvencies in Scotland at a higher level in 2018 than in the previous year, as 2017 recorded the lowest number of annual corporate insolvencies for quite some time. It is also worth noting that we may not be seeing the whole picture, as the statistics do not include administrations or company voluntary arrangements, nor the number of companies which were rescued outside of a statutory insolvency procedure.”

“That said, the year on year increase in liquidations is nonetheless concerning. Consumer confidence in Scotland has been firmly in negative territory all year, and – as the higher number of personal insolvencies in Scotland confirms – many people are at the reaches of their personal budgets with no extra cash. Companies which are counting on consumer spending to at least match previous levels may well find themselves counting the costs of this approach. In the North East, the oil and gas sector downturn has had a noticeable ‘domino effect’, triggering insolvencies for businesses which rely on the extraction sector, especially in the hospitality sector.”

“Scottish business experienced uncertain conditions over 2018, not least due to the uncertainty around how, when, and under what terms the UK will leave the European Union. Investment decisions have been deferred in many cases, and companies which rely on resources or components imported from or via the European Union have had to prepare for a range of scenarios. Some companies will have had to put working capital into stockpiling materials, adding to pressure on cashflow.”

“The health of small and medium-sized enterprises is key to the health of the Scottish economy. Scotland’s corporate scene is predominantly ‘SME’-based, notwithstanding the presence of several large companies, and smaller companies often require a different kind of support. Director education, for example, could be a worthwhile investment, with R3’s members reporting that a lack of director training contributes to numerous insolvencies of SME businesses.”

“In general, R3’s members in Scotland are reporting increased activity, across a variety of sectors. This indicates that market conditions are bubbling and problems are rising to the surface, with more business, creditors and individuals turning to restructuring and insolvency professionals to help them out. Acting sooner rather than later when problems arise can make all the difference, as it is highly unlikely that ignoring a business problem will make it go away.”

Blair Nimmo, Global Head of Restructuring for KPMG, said: “The latest insolvency figures reflect an annual increase in the number of businesses becoming insolvent in Scotland, which is disappointing but by no means alarming. Indeed, a quarterly comparison reveals a fall in the total insolvencies at the close of the year.”

“That being said, it will be interesting to see how the stats move throughout 2019 as we begin to see the real impact of Brexit take hold. We have undoubtedly seen an increased nervousness across the business community in Scotland, which has only been exacerbated by the current political environment.”

“Whilst it remains difficult to predict what impact the final Brexit outcome will have on businesses, we are encouraging clients across the sector to develop contingency plans, specifically in areas such as funding, working capital, supply chain, contracts and people.”

“In 2019 so far, we’ve seen a number of UK household names enter administration, with the likes of HMV and others citing trading difficulties as a result of poor festive trading.”

“Throughout January we have noticed an uplift in general restructuring activity from companies requiring assistance in the generation of additional funding in response to a difficult trading environment.”