finance

Scottish insolvency figures rise during the third quarter



The number of corporate insolvencies in Scotland rose 80.3% between July to September this year, compared to the same period last year.

Insolvency and restructuring body R3 found the number of liquidations and receiverships in Scotland increased by 29.4% to 211 during July to September, compared with April to June.

Meanwhile, creditors’ voluntary liquidations rose to 179 for July to September – an increase of 35.6% on the 132 recorded for April to June – and by 159.4% on June to September 2020’s figure of 69.

The number of personal insolvencies – bankruptcies and protected trust deeds – in Scotland rose by 1.8% to 1,918 in July to September, compared with the 1,885 in April to June, while being 8.4% higher than in July to September 2020, at 1,770.

Tim Cooper, chair of R3 in Scotland and a partner at Addleshaw Goddard, explained that the quarterly and annual increase in corporate insolvencies has been driven by an increase in Creditors’ Voluntary Liquidations, which suggests that company directors are choosing to close their businesses, having deemed future success unlikely after trading for more than a year and half during a pandemic.

“The figures reflect the tough three months Scotland’s business community has experienced – restrictions lifted in August, but it has taken time for trade to pick up and will be a while before it returns to pre-pandemic levels.

“Businesses have also faced supply chain disruption, and international trade has been affected by both the pandemic and the change in our relationship with the EU.

Cooper added: “When it comes to personal insolvency, the quarterly and annual increases have been driven by a rise in Protected Trust Deeds, which suggests that more people are working with their creditors to resolve and repay their debts, without reverting to bankruptcy – and is supported by the fact that bankruptcy numbers in Scotland fell compared to the previous quarter and this time last year.

“It’s also worth noting that the number of people entering a moratorium in Scotland increased dramatically this quarter, which indicates that there’s been a significant rise in the number of people who are facing or approaching serious financial difficulty.”

Analysis by Interpath Advisory confirmed the R3 findings, also blaming the unwinding of government support measures, along with rising inflation and supply chain pressures.

Analysis of notices in The Gazette by the restructuring firm revealed that a total of 14 companies fell into administration or receivership from July to September – up from 10 in the second quarter, and also up on the 10 appointments seen during the same period last year.

UK administrations and receiverships increased by 26% in the third quarter of 2021 – from 123 in quarter two in 2021 to 155 in the third quarter – albeit this was significantly down from the 243 appointments during the comparative period in 2020, and still at only 39% of pre-pandemic levels when compared to the 401 appointments in the third quarter of 2019.

Across the UK, the construction and energy sectors saw the largest rise in levels of administrations and receiverships in the third quarter, with three times as many filings for insolvency in the energy sector (nine appointments) and twice as many filings in the construction sector (34 appointments) compared to the previous quarter.

Blair Nimmo, chief executive of Interpath Advisory, commented: “It’s been a particularly challenging quarter for the UK’s energy sector, which is reeling from the recent spikes in wholesale gas, coal and electricity prices to unprecedented highs.

“The reality is that with the price cap restricting the ability of companies to pass increasing input costs onto consumers, there is little room for manoeuvre for those smaller suppliers which don’t have the financial bandwidth to absorb the higher price, leaving many with little option but to enter an insolvency process.

“More broadly, with no end in sight to this price volatility, effective business planning is now critical, energy-intensive businesses in particular will need to quickly and carefully consider the impacts of cost inflation and develop mitigating strategies.”

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