As business owners and directors across Scotland are gearing up for hopefully their busiest season of the year, the latest monthly corporate insolvency figures from The Insolvency Service for October have been released.
Analysis
In Scotland last month there were 116 company insolvencies – an increase of 18% from September’s total.
This total consisted of 60 compulsory liquidations (up from 18); 50 CVLs (up from 48); five administrations (down from seven) and one receivership appointment. No CVAs were recorded last month.
Between 26 June 2020 and 30 September 2024, there were two restructuring plans in Scotland and no moratoriums.
Scotland has historically seen more compulsory liquidations than any other kind of insolvency process but since April 2020, CVLs overtook them and have remained higher ever since.
This shows that more Scottish directors and their accountants are being proactive and taking difficult but practical decisions earlier rather than relying on their creditors to take action themselves and force the closure of their companies.
The total insolvency rate in Scotland in the 12 months up to and including October 2024 was 53.1 per 10,000 companies on the effective register. This was up from 52.5 from the preceding 12 months ending October 2023.
The total number of company insolvencies for the whole of the UK in October was 1,894 – an overall reduction of 180.
Directors of solvent companies chose to wind down their businesses before any tax changes were announced
Tim Cooper, President of R3, the insolvency and restructuring trade body said: “The month-on-month and year-on-year fall in corporate insolvency numbers is the result of a decrease in all corporate insolvency processes, with the exception of receiverships.
“On the face of it, this may seem surprising, as concerns about potential tax changes in the Budget drove high numbers of Members’ Voluntary Liquidations in September and October as directors of solvent companies chose to wind down their businesses before any changes were announced and this may have skewed this month’s figures.
“We’ve also seen a more positive trading climate recently as interest rates and inflation have fallen and retail, hospitality and construction have seen an improvement in spending, sales or output.
“Directors of firms in these sectors will be hoping this continues after a largely challenging year, while retail and hospitality bosses will be hoping that this year’s “Golden Quarter” is a successful one, and retailers will hope this year’s Black Friday sales jump-start pre-Christmas consumer spending.
“The big question for many businesses is how the change to employer National Insurance Contributions (NICs) that was announced in the Budget will affect them. Although this will increase costs for all but the smallest businesses, the feedback from the market is that some directors and management teams will look to manage this by managing their staff levels or raising their prices, and firms have time to work out how they will manage the increases in costs this policy will bring before it takes effect in April so the jury is still out on how this will affect levels of corporate insolvency.
“Directors will need to review all their costs and carefully think about how this additional expense can be absorbed. Given the potential impact this could have on their bottom lines, they should consider seeking advice from qualified sources about how they can best manage this so any potential issues can be identified and addressed as early as possible.
“The profession is also continuing to see an increased demand for, and a growing use of, Restructuring Plans, with a number of large businesses turning to this process in recent weeks to help improve their financial position and keep their business and supply chains functioning.
“We still need to find a means of making Restructuring Plans accessible to smaller firms, but the profession is working towards this as we know SMEs are keen to use them where appropriate.”
While the overall corporate insolvency statistics for the UK are down, the rise in Scotland (and Northern Ireland) shows that insolvency volumes are unlikely to recede any time soon.
Debt is still a big issue for many Scottish firms and while economic conditions are brightening, tailwinds haven’t been enough for several to really get on top of what they’ve borrowed. This puts pressure on resources and means they are more vulnerable to any fresh shocks or cost increases.
Businesses also have to contend with National Insurance increases from April, so sectors that rely on seasonal spikes such as hospitality and retail will be hoping for a strong festive period and Hogmanay to help maintain their resilience.
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