Scottish Insolvency Statistics (Jan-Mar 2019): Comment from R3

Commenting on the Scottish Insolvency Statistics, January to March 2019, Duncan Swift, Vice President of R3, the insolvency and restructuring trade body says:

Corporate insolvencies:

  • The number of corporate insolvencies in Scotland rose by 34% in January-March 2019 compared with the previous quarter (October-December 2018), and rose by 8% compared with the same quarter the previous year (January-March 2018).

“The jump in the number of corporate insolvencies in Scotland in the last quarter continues a long-standing trend, and indicates that many companies are finding market conditions tough at the moment. Many distressed companies, especially in the retail and restaurant sectors, will have put their heads down and tried to get in as much cash as possible over the busy festive period – leaving difficult conversations about future options to the cold light of the New Year.

“Although GDP growth in Scotland in the final quarter of 2018 outpaced the UK as a whole, its expansion rate of 0.3% is still relatively sluggish, and masks a fall in the production sector’s output of 0.9% over the same period.

“After spending all of 2018 in negative territory, consumer confidence in Scotland saw a further notable drop in the first quarter of this year, to -9.6. House price falls in some areas will also make people feel worse off, and perhaps less inclined to spend on non-essentials. This is definitely bad news for all companies which rely on the consumer pound, as has been very evident from the well-publicised troubles in the restaurant sector, especially among casual dining chains, and on our high streets.

“Unsurprisingly, Brexit is still making an impact on Scottish businesses here and now, as they put off investment in new equipment or processes, or build up stockpiles of essential supplies to insulate themselves from possible shocks in the future. With uncertainty making business decisions trickier than usual, it has been simpler for Scottish firms to take on extra staff, rather than to spend money on new machinery or software. As unemployment is low, companies are feeling the pressure to raise wages to attract new staff, especially outside major cities and larger towns.

“On the plus side, our whisky industry is doing a roaring trade. If 2019 matches the 8% growth in exports seen in 2018, this will give a boost not just to the whisky sector, but to other areas such as tourism and transport. With interest growing in craft spirits and as plans to open new distilleries progress, Scotland’s economy as a whole should benefit.

“With small and medium-sized enterprises forming the cornerstone of the Scottish economy, their relative flexibility may help them to adapt to changing market conditions – although expert advice can often prove helpful, to businesses of any and every size and shape. Directors who are unsure as to the best route forward, or who are worried about their company’s viability, should seek qualified advice from a professional source such as an insolvency practitioner at the earliest opportunity.”

Personal insolvencies:

  • The number of personal insolvencies (bankruptcies and protected trust deeds) in Scotland rose by 29% in January-March 2019 compared with the same quarter the previous year (January-March 2018), and rose by 2% compared with the previous quarter (October-December 2018).

“The quarter-on-quarter rise in the number of personal insolvencies in Scotland is not unexpected, as personal insolvency numbers have been moving upwards since 2015. The comparison with the same quarter last year is especially stark.

“Unemployment rates in Scotland recently hit yet another record low, and average pay is rising above inflation in many sectors, but it might take a while for a pay boost to filter through into insolvency numbers. The recent recovery in the price of fuel will be adding pressure to people’s outgoings, too.

“A recent real wage rise will not immediately undo the persistent build-up of personal debt we’ve seen over the last few years. In the UK, household debt stood at 133% of household disposable income in December 2018, while the average number of months offered on zero-percent interest rate credit card deals is creeping downwards, which could spell trouble for those people who are using such offers to stabilise their finances without accruing extra charges.

“The message we want to get out to people who are in financial trouble is that opening up about their problems is vital. Talking to someone, especially a professional advisor, about finances can feel like a big step, but once the subject has been broached, it becomes easier. A qualified professional will be able to set out the options available and to signpost to other sources of help and advice. Doing nothing will just exacerbate the issue, while the earlier that proper support is sought, the more can usually be done to relieve the situation.”