Scottish Insolvency Statistics (Apr-Jun 2019): Comment from R3

24 July 2019

Commenting on the Scottish Insolvency Statistics, April to June 2019, Eileen Blackburn, of R3 in Scotland, the insolvency and restructuring trade body says:

Corporate insolvencies

• The number of corporate insolvencies in Scotland fell by 15% in April-June 2019 compared with the previous quarter (January-March 2019), and fell by 2% compared with the same quarter the previous year (April-June 2018).

"The fall in corporate insolvency numbers compared with the previous quarter is out of line with the general upward trend since the beginning of 2017, but a quarterly fall is not enough by itself to reverse the longer-term pattern.

"In general, it's fair to say that economic sentiment in Scotland is mixed. Businesses which were bracing themselves for Brexit at the end of March may have been caught out by the decision to postpone the UK's exit from the EU until the end of October. Many companies stocked up in the first quarter of 2019 on raw materials and components, in preparation for potential disruption to normal delivery flows via EU countries in the case of a no-deal Brexit, and may have found after the 29^th of March that they were left with a pile of stock in warehouses, with no immediate buyers. The prospect of doing it all over again later this year, putting added pressure on cash flow, is not something that will appeal to many businesses, which - understandably - would prefer some predictability and stability as they plan for the rest of the year and beyond.

"While recent GDP forecasts for Scotland have been slightly better than earlier predictions, this may have been partly as a result of stockpiling, and may be at the expense of later economic activity, as companies decide that caution is the wiser policy in unsettled times.

"The recent increase in 'real wages' - wage increases above the level of inflation - will have given Scottish consumers' personal finances a boost, although this has not necessarily fed through to increased spending in shops, especially for consumer goods . On the plus side, the price of oil recovered somewhat over the second quarter, which will have been helpful to the beleaguered Scottish extraction industry.

"R3's monthly research into the levels of Scottish companies at higher than usual risk of insolvency in the next 12 months show that the proportion of Scotland's businesses at elevated risk has been remarkably static for nearly a year, albeit at a higher level than between two and three years ago.

"It seems that a raised risk level may be the 'new normal' for Scottish businesspeople. Adapting to new market realities is key to any business's survival - and the sooner action is taken to make necessary changes, the better for any company. Speaking to a professional and qualified advisor can be a sensible move, to get an unbiased third party perspective on next steps."

Personal insolvencies

• The number of personal insolvencies (bankruptcies and protected trust deeds) in Scotland rose by 7% in April-June 2019 compared with the previous quarter (January-March 2019), and rose by 9% compared with the same quarter the previous year (April-June 2018).

"Personal insolvency numbers in Scotland have been generally on the rise for around four years, and this quarter-on-quarter rise is further confirmation of that trend, as well as of generally weaker financial resilience among Scots in 2019 to date.

"Recent above-inflation wage increases will not alone have been enough to help many people in debt keep up with their repayments. It's also quite counterintuitive that personal insolvency numbers are on the rise while Scotland enjoys very low overall levels of unemployment. However, there are still pockets of high unemployment which will require joined-up intervention to shift, while many people who technically count as 'employed' would be grateful for more hours, or a switch from part-time to full-time work.

"Consumer spending is lower than this time last year; people may be choosing to rein in their outgoings in order to try and build up a financial cushion, in response to worries about their personal budgets. The increase in the Minimum Wage in April will have given many an immediate financial boost, albeit one that may not offset a higher cost of living.

"The rise in personal insolvencies coincides with rising concerns about personal debt levels. R3 research from earlier this year found that over two fifths (44%) of adults in Scotland are worried about their current level of personal debt, notably higher than in April last year, when 35% of adults in Scotland said the same thing, while a quarter (23%) of adults in Scotland said they do not have any savings at all at the moment.

"For people who are finding it tough to cope financially, seeking reputable advice on the best way forward would be a sensible next step. Dealing with debt issues can be lonely and can grind away at anyone's mental defences, but there's no need for anyone to suffer alone - and a good debt advisor will be able to signpost clients towards sources of support, as well as setting out their options. Seeking out such advice as soon as an issue rears its head is also helpful in terms of the choices that will be available, as the longer a debt problem lingers, the more intractable it can become."