Scottish insolvencies on the rise, with more to come – comments on latest AiB stats

The number of Scottish companies entering insolvency increased during the third quarter of 2022 new analysis from the Accountant in Bankruptcy (AiB) shows, amid fears that more will soon follow.

Steven Jansch, head of business restructuring and support at Gilson Gray, commented: “These numbers are unfortunately not surprising, taking into account the end of a lot of the government Covid-19 support measures, the continued turmoil in financial markets, the increase in interest rates, and the rise of virtually all other costs that businesses face. The pressures businesses are facing are also not restricted to any one sector, with retail, food and drink, construction, and manufacturing all seeing casualties. We only see this trend continuing into next year.”

The Scottish figures reflect the UK market generally, with 265 UK companies going into administration between July and September, up from 176 during the same period in 2021. Although these figures show significant increases, they are yet to hit the pre-pandemic levels of 401 administrations in the third quarter of 2019.

Steven Jansch said: “The significant increases in interest rates is having and will continue to cause significant problems for companies with high levels of debt, as will labour shortages, increased labour costs, and soaring expenditure on costs like energy bills. Businesses with any form of intentional trade are also suffering from a weak sterling and consumers continue to try to tighten purse strings to cope with higher mortgage payments and their own huge energy bill increases.”

Consumer habits and demands have also changed.  Scottish footfall decreased by -14.8% in August year on three years (Yo3Y), 1.7 percentage points better than July but worse than the UK average decline of -12.4% (Yo3Y) according to the Scottish Retail Consortium. Shopping centre footfall declined by -20.7% in August (Yo3Y) in Scotland, a weakening on the decline of -19.2% in July.

Steven Jansch added: “The positives coming out of lockdown, such as the return of holidaying, social occasions, and tourism have clearly not been enough for many businesses to avoid insolvency.

“Although the UK Government has provided further support, such as energy costs caps, for many businesses this will be too little too late. Businesses need to ensure good communication both internally and externally. Having readily available current management information is crucial and being proactive in analysing that is the only way many businesses will survive. Dealing with rapid changes and foreseeing problems before they arise, and also making difficult choices when the need arises, are also crucial.

“Fundamentally a lot of that entails getting advice from professional advisors, and it is never too early to do that. Getting good advice early is going to be key to avoid insolvency for many, although given that there is no sign of the pressures on businesses easing, there is also most likely going to be more insolvencies to follow.”