Firms urged to review strategies as Scots corporate insolvencies jump 28 per cent

Businesses in Scotland are being encouraged to safeguard their futures on the back of new data showing a jump in corporate insolvencies, with the trend expected to continue as firms are landed with higher energy bills.

There were 270 corporate insolvencies in the second quarter of 2022/23, spanning July to September, marking a 28 per cent year-on-year increase, while personal insolvency numbers rose to 2,069, a 7.7 hike over the same periods, official Scottish Government statistics show. The number of both types of insolvencies also both rose quarter on quarter, by 10.7 per cent and 1.3 per cent respectively, on the back of sky-high inflation and the escalating cost-of-living crisis.

Looking at the rate of companies folding, Iain Fraser, chairman of insolvency and restructuring trade body R3 Scottish Technical Committee, said the quarterly and yearly jumps to the highest level since the beginning of 2020 has been driven by a rise in the number of compulsory liquidations.

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He added: "Compulsory liquidations have risen more than 143 per cent from the same period last year, and the key factor behind this is the end of the temporary legislation that altered the process and criteria for these, in an attempt to support businesses that were affected by the pandemic.

Scotland saw 270 corporate insolvencies in the quarter to September, according to new data. Picture: Christopher Furlong/Getty Images.

"Supply-chain issues, spiralling inflation, and labour market shortages are all having a huge impact on Scottish firms' ability to operate successfully, let alone grow, over the last quarter. And with further price rises such as the energy cap increase we saw at the beginning of October yet to be factored into the figures, it is likely that we will see corporate insolvencies continue to rise next quarter.

"For many businesses and individuals, some difficult choices lie ahead, but with the right support from a qualified professional, there are many potential options available to help tackle financial distress. Having the conversation early, before your money worries get worse, will give you more time to consider the best course of action."

Steven Jansch, head of business restructuring and support at Scottish law firm Gilson Gray, echoed this message, saying it is “never too early” to get advice from professional advisors, also stating that the latest insolvency 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”. He added that such pressures “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”

Gilson Gray added that 265 UK companies went into administration between July and September, up from 176 a year previously, but below the 401 in the third quarter of 2019. Mr 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. 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 [key].”

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