Sharp fall in Scottish corporate insolvency rates

The latest Scottish insolvency statistics show a sharp drop in both company liquidations and personal bankruptcies, which have fallen to their lowest level since before the global economic downturn, while Insolvency Service numbers for England and Wales indicate improvements year on year

Data released by the Accountant in Bankruptcy (AiB) for the three months to the end of December 2014 indicates the combined number of bankruptcies, protected trust deeds (PTDs) and Debt Arrangement Scheme (DAS) applications approved totalled 3,730. This was 17.6% lower than the corresponding quarter a year ago.

Total personal insolvencies, including both bankruptcies and PTDs, stood at 2,633, 12% lower than the previous quarter and 21.3% lower than the same quarter a year ago. This is the lowest level for almost ten years, continuing a long term decline since 2008-2009.

The decrease in personal insolvencies is largely due to the decrease in PTDs recorded, which dropped by 21% this quarter and is also 36.9% down than the corresponding quarter of the previous year. This quarter’s figure represents the lowest number of PTDs registered in almost thirteen years.

The number of Scottish registered companies becoming insolvent or entering receivership decreased for the second successive quarter, this time down by 7.7%. The total was also 15.7% lower than the same quarter of the previous year.

Business Minister Fergus Ewing said: ‘There can be no doubt insolvencies falling back to pre-recession levels reflects the improving economic picture in Scotland – but there is no room for complacency.’

This view is endorsed by analysis from BDO which suggests that the further falls in the personal insolvency rate are unlikely, particularly if interest rates rise.

Bryan Jackson, business restructuring partner with BDO, said: ‘Although the annual figures have gone down there is now a base level of individuals going bust in Scotland which is likely to remain relatively static over the coming years.

‘The concern however is that many individuals are taking on substantial amounts of debt due to the low interest rates and the easy availability of credit without considering how they will pay this if costs increase, their circumstances change or the economy declines. There may also be an issue from the falling oil price and its impact on employment in the oil and gas industry and its support services.’

There is support for BDO’s view from Tim Cooper, chairman of insolvency trade body R3 in Scotland, who said it was ‘unclear’ as to how long the downward trend in personal insolvencies will continue and cautioned that 2015 could prove ‘make or break’ for some Scottish businesses.  

‘The first half of the year will bring a series of headwinds to the UK and Scottish economy, including uncertainty over the general election, the extent of a further devolution of tax powers, and the impact of Eurozone events, and these will create challenges as well as opportunities for our businesses. While the drop in insolvencies since the last quarter is a welcome sign, this time of year can bring with it its own challenges,’ Cooper said.

Ewing said the Scottish government was taking additional steps to tackle debt issues, including the introduction of Scotland’s Financial Health Service, an initiative aimed at helping those people with money worries lighten their financial load by signposting them to advice and support from trusted organisations.

Following on from the Scottish insolvency figures announced earlier, data released by the Insolvency Service shows that rates of both company and individual insolvencies are also down in England and Wales.

A total of 14,040 companies entered into liquidation in 2014, 6.3% fewer than in 2013 and the lowest annual total since 2007.

Creditors’ voluntary liquidations totalled 10, 302, a 9.3% decrease on the previous year and the lowest annual total since 2008. The number of administrations was almost a quarter lower than last year (24.3%), its lowest level since 2004, while receiverships and company voluntary arrangements declined to their lowest level since 2007.

The Insolvency Service figures show that overall, the number of people who became insolvent in England and Wales decreased for the fourth successive year, to the lowest annual total since 2005. The number of bankruptcies (17.37 lower) and debt relief orders (3%) decreased, but the number of individual voluntary arrangements was at its highest level since they were introduced in 1987, totalling 52,190.

Graham Horne, interim chief executive at the Insolvency Service, said: ‘Today’s figures show the lowest number of personal insolvencies for some years. It is also good to see that more debtors have been able to reach agreements with those to whom they owe money through the use of Individual Voluntary Arrangements (IVAs).

‘Corporate insolvencies have also dropped, especially the number of administrations, which are at their lowest since 2004.’

Louise Brittain, council Member of R3, the insolvency trade body, said: ‘Although corporate insolvency has fallen over 2014, it’s notable that compulsory liquidations have risen slightly. This may be a sign that creditors may be becoming less lenient to debtors than they have been since the financial crisis.'

‘Overall though, despite a very slight rise in insolvencies in the last quarter, low interest rates and falling inflation are combining to help keep insolvencies low. The number of companies going through an insolvency process is almost down to pre-financial crisis levels, although it’s taken seven years to get to this point.’

Brittain pointed out that IVAs are now the dominant form of personal insolvency, and predicted personal insolvency rates would continue to hover around the 100,000 a year mark, although this figure does not include debt management plans.
'It is unlikely HMRC’s new "notices to pay" will be having an effect on bankruptcy numbers. This may happen eventually, but a change in the bankruptcy creditor petition threshold from October means these "extra" bankruptcies may be cancelled out by fewer "low value" bankruptcies.’ Brittain said.

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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