Scottish business insolvencies double

25th April 2022

Latest figures from Accountant in Bankruptcy (AiB) have indicated that business insolvency numbers (liquidations and receiverships) in Scotland doubled in March.

In March 2022 there were 86 business insolvencies registered in Scotland, 100% (2 times) higher than March 2021 but 11% lower than in March 2019.

The insolvencies comprised of nine compulsory liquidations, 71 CVLs and six administrations.

There were no CVAs or receivership appointments.

Quarterly analysis shows that overall, corporate insolvency numbers (liquidations and receiverships) in Scotland for Q4 2021-2022 were 164% higher compared with Q4 2020-2021, at 240 (2021-2022) against 91 (2020-2021).

The number of corporate insolvencies (liquidations and receiverships) in Scotland stayed the same in Q4 2021-2022 (January-March 2022) compared with the previous quarter (October-December 2021).

Richard Bathgate, Chair of insolvency and restructuring trade body R3 in Scotland and Restructuring Partner at Johnston Carmichael, said “There has been a sharp rise in corporate insolvencies over the last financial year, with 854 corporate insolvencies in the financial year 2021-22 compared to 442 corporate insolvencies in the financial year 2020-21. This has been driven by a 160% increase in the number of Creditors’ Voluntary Liquidations (CVLs) (270 in 2020-21 compared to 701 in 2021-22).”

“It is interesting to note that in the financial year 2021-22, compulsory liquidations actually decreased by 11% compared to 2020-21 (there were 153 compulsory liquidations in 2021-22 compared to 172 in 2020-21). This suggests directors are preferring to use the CVL procedure over the compulsory liquidation procedure, perhaps because of lower costs to enter the process.”

“In the latest quarter, Q4 2021-22, this trend of a sharp rise in the number of CVLs is even more pronounced, with an increase of 257% in the number of CVLs compared to Q4 2020-21 (in Q4 2020-21 there were 56 CVLs and in Q4 2021-22 there were 200).”

“Members’ voluntary liquidations (MVLs), which are solvent liquidations often used to make tax efficient returns of capital to shareholders, declined by 18% in the financial year 2021-22 compared to 2020-21 (879 compared to 717) and this trend was even more pronounced in Q4 2021-22 compared to Q4 2020-21, which saw a 40% decrease in the number of MVLs.”

“There has been a sharp rise in corporate insolvencies in the financial year 2021-22, particularly driven by directors placing companies into insolvency using the CVL procedure. The timing of this increase in corporate insolvencies coincides with many businesses needing to commence repayments on Bounce Back Loans from May 2021, notwithstanding that there are options available for companies struggling to make Bounce Back Loan repayments, including the Pay As You Grow scheme.”

“As we emerge from the COVID-19 pandemic, business owners are taking stock of the financial position of their companies and considering whether debt they have taken on to survive the pandemic is sustainable. I would urge any director concerned about Bounce Back Loan repayments to talk to their lender in the first instance to understand what further support may be available.”

“Businesses are being hit from every angle with creditor pressure increasing, inflation causing a rise in costs of raw materials, fuel and wages, whilst at the same time consumer demand is down because of the increased cost of living.”

“Q4 2021-22 also spanned the most recent period of restrictions due to the Omicron variant. These restrictions included physical distancing and table service in hospitality settings, as well as impacting nightclubs and placing capacity limitations on indoor events.”

“As a result, many businesses missed out on a vital cash injection from trading at their busiest time of year during the festive period. As we head into spring, this has meant some directors may be considering the debt in their business unsustainable and are using corporate insolvency and specifically CVLs to restructure their business and alleviate financial distress.”