Scottish businesses which survived the recession are now going to the wall in greater numbers than anywhere else in Britain. In the first three months of this year the number of corporate insolvencies north of the border was up more than 70 per cent on the same period last year.
The figures, published yesterday by the Accountant in Bankruptcy — the body responsible for administering personal bankruptcies and recording corporate insolvencies in Scotland — show there were 244 corporate collapses in the quarter to 31 March. Last year’s figure was just 143.
Up 6.6 per cent on the 2013 October to December quarter, the first return for 2014 recorded 181 compulsory liquidations, 62 creditors’ voluntary liquidations and one receivership. The figures do not include administrations.
The latest AiB report shows it’s been a roller coaster few years for Scottish businesses. Corporate insolvency showed a general upward trend between 2009 and 2010 and the first quarter of 2012 and 2013, followed by a sharp decrease for the remainder of the 2012-13 financial year. The number of companies failing has since started to climb again.
Perversely, many analysts feel this latest leap in Scottish insolvencies could be a sign of economic recovery, with improving conditions making it easier for banks to realise value from distressed company assets. “In previous recessions, we have seen insolvency numbers increasing, not at the bottom, but as we ascend from the bottom,” explained Matt Henderson, head of business recovery and insolvency services at accountancy firm Johnston Carmichael.
“It is generally to do with improved confidence in buying assets and a perception prices will increase, and that gives banks a golden opportunity,” he added. “Over the last couple of years, banks haven’t really had a chance to realise distressed assets because of the lack of confidence and, indeed, the lack of funding for businesses or for assets. If you are seeing insolvency numbers increase, ironically it can be a sign of an improving economy. It is kind of counter-intuitive.”
Bryan Jackson, a business restructuring partner at accountancy firm BDO, is more philosophical. He blames the dramatic rise on the volume of dead wood. “I would honestly guess that a lot of these businesses have been in a bad way for quite a long while, some of them way back to when the recession started” he says. “Some of it is just timing, when a bank thinks, ‘We have stuck with this for years. If a business can’t come back when the economy is beginning to turn, it is never coming up’.”
And things are not going to get any better. Henderson believes corporate insolvencies will continue to rise as state-backed banks are returned fully to the private sector. That transition, he says, could see such banks adopt an approach to outstanding debt based more on commercial, and less on public interest, grounds.
“Clearly they don’t want to put a company into administration, then be criticised for doing so, banks are very conscious of public perception right now,” he concludes. “There is one thing which might increase insolvency numbers as the banks return to private ownership: their behaviour may become more commercial and they may not carry situations they are currently carrying and start to look at things with less concern for public interest.”
