The number of Scottish registered companies failing rose more than 21 per cent during 2018, according to recent statistics. Analysis of the Accountancy in Bankruptcy (AiB) figures found 945 Scottish firms had failed during 2018 compared with 780 in the previous year, the highest annual number of corporate insolvencies since 2012.
Scottish companies which became insolvent or entered receivership increased by four per cent in the third quarter (Q3) of 2018-19, with 209 companies becoming insolvent compared with 201 in the same quarter of 2017-18.
There were 122 members’ voluntary liquidations (MVLs) in 2018-19 Q3, down 5.4 per cent from 129 in Q3 the previous year. MVLs may be adopted as a result of a company member retiring, restructuring of a company, deregistering an inactive company or changes in the profitability of a market.
If a company is unable to pay its debts, a director (or if enough shareholders agree) can propose a creditors’ voluntary liquidation, meaning the company will stop trading and be liquidated. Creditors’ voluntary liquidations were up 2.6 per cent from Q3 2017-18 figures (78) to 80 in 2018-19.
Compulsory liquidations, on the other hand – a procedure by which the assets of a company are sold and distributed to the creditors of the company – increased by 4.9 per cent in the same quarter.
Head of Restructuring and Debt Advisory at the firm, Eileen Blackburn, explained:
“The increase in the number of corporate insolvencies in 2018 is of great concern. This is the highest annual figure since 2012 and is the fourth highest figure ever.”
“That this is happening when interest rates are at historically low levels, when unemployment is at a record low of 3.7 per cent of just 100,000 people, and the economy is growing, indicates something more fundamental is happening.”
While Scottish firms are struggling with bankruptcy, it appears that personal insolvencies are following a similar trend. According to French Duncan’s analysis of AiB’s most recent data, there was a 13.6 per cent rise in Scots going bust compared with the previous year, rising from 10,585 to 12,025.
Awards of bankruptcy totalled 1,217, a 9.9 per cent increase on the same quarter in 2017-18 when 1,107 were awarded. Of the 1,217 awards of bankruptcy, 82 per cent (1,028) came from debtor applications.
Total personal insolvencies which include bankruptcies and protected trust deeds (PTDs) increased by 18.1 per cent, up from 2,707 in 2017-18 to 3,198 in 2018-19. There were 1,981 PTDs – a formal solution made between a debtor and creditors to repay the debt – in Q3 of 2018-19, a 24 per cent increase on the same quarter the previous year.
The Scottish Debt Arrangement Scheme (DAS), which allows debtors to repay their debt without the threat of bankruptcy, saw a 17 per cent rise in approved debt repayment programmes with 668 awards approved in the third quarter compared to 570 awarded in Q3 of 2017, showing more Scots are successfully regaining control of their debt.
Within Q3 of last year, £9.1 million was repaid from debtors through the scheme, a slight decrease on the £9.5 million that was repaid in the same quarter the previous year.
Minister for Business, Fair Work and Skills, Jamie Hepburn, concluded:
“These figures highlight the uncertain economic times we are facing and the fact that more Scots are finding themselves without enough to live on. The economic damage caused by Brexit and the challenges of the roll out of Universal Credit bear much of the blame. In this climate, it is even more important for people encountering financial difficulty to seek early advice and the appropriate solution.”
Tim Cooper, chair of R3 in Scotland, also noted:
“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.”
Legal changes can have a dramatic impact on you and your business. To ensure you are kept up to date with the latest developments and have the knowledge to make timely, effective decisions, please sign up for our free updates.