Scottish Insolvency Statistics (Oct-Dec 2018): Comment from R3

23 January 2019

Commenting on the Scottish Insolvency Statistics, October to December 2018, Tim Cooper, Chair of R3 in Scotland, the insolvency and restructuring trade body says:

Personal insolvencies

• Overall, personal insolvency numbers in Scotland for the whole of 2018 were 14% higher than in 2017, and were at their highest level since 2013.
• The number of personal insolvencies (bankruptcies and protected trust deeds) in Scotland rose by 4% in October-December 2018 compared with July-September 2018, and rose by 18% compared with October-December 2017.

"Annual numbers of personal insolvencies in Scotland have been rising every year since 2015, and 2018 continues this trend. In line with this, R3's members in Scotland reported increased activity levels in dealing with financial distress across 2018.

"Ten years on from the start of the global financial crisis, many people have reached the limits of their borrowing capacity, and are - put simply - tired of being in debt. Debt consolidation and zero-percent interest rate credit cards will only go so far, and larger numbers of people are seeking a fresh start through a form of personal insolvency, rather than continuing in a holding pattern with interest and charges building little by little.

"Although the Scottish unemployment rate recently hit a record low, this does not tell the whole story; 22% of Scots aged 16-64 are counted as economically inactive, and not included in the jobless rate, for example. Recent years have also seen rising numbers of people in work but below the poverty line.

"The UK inflation rate generally decreased over the course of 2018, giving a small measure of relief to squeezed budgets, and the fall in fuel costs towards the end of the year will also have helped. However, this easing of fuel prices and the overall inflation rate comes off the back of a long period of rises, which will have put pressure on budgets.

"While this rise in personal insolvency is troubling, there is a silver lining in that there has been, to an extent, a shift in the culture around debt. People now are more willing to talk about their personal finance problems, and to seek help and advice, rather than bottling everything up until it escalates to a degree that can no longer be ignored. There is more progress to be made on this, but anything which makes it easier for people to address financial problems is to be welcomed. The sooner that someone in financial distress reaches out for help, the more can be done to resolve their situation."

Corporate insolvencies

• Overall, corporate insolvency numbers in Scotland for the whole of 2018 were 21% higher than in 2017, and were at their highest level since 2012.
• The number of corporate insolvencies in Scotland fell by 10% in October-December 2018 compared with July-September 2018, and rose by 4% compared with October-December 2017.

"It's not especially surprising to see corporate insolvencies in Scotland at a higher level in 2018 than in the previous year, as 2017 recorded the lowest number of annual corporate insolvencies for quite some time. It is also worth noting that we may not be seeing the whole picture, as the statistics do not include administrations or company voluntary arrangements, nor the number of companies which were rescued outside of a statutory insolvency procedure.

"That said, the year on year increase in liquidations is nonetheless concerning. Consumer confidence in Scotland has been firmly in negative territory all year, and - as the higher number of personal insolvencies in Scotland confirms - many people are at the reaches of their personal budgets with no extra cash. Companies which are counting on consumer spending to at least match previous levels may well find themselves counting the costs of this approach. In the North East, the oil and gas sector downturn has had a noticeable ‘domino effect', triggering insolvencies for businesses which rely on the extraction sector, especially in the hospitality sector.

"Scottish business experienced uncertain conditions over 2018, not least due to the uncertainty around how, when, and under what terms the UK will leave the European Union. Investment decisions have been deferred in many cases, and companies which rely on resources or components imported from or via the European Union have had to prepare for a range of scenarios. Some companies will have had to put working capital into stockpiling materials, adding to pressure on cashflow.

"The health of small and medium-sized enterprises is key to the health of the Scottish economy. Scotland's corporate scene is predominantly ‘SME'-based, notwithstanding the presence of several large companies, and smaller companies often require a different kind of support. Director education, for example, could be a worthwhile investment, with R3's members reporting that a lack of director training contributes to numerous insolvencies of SME businesses.

"In general, R3's members in Scotland are reporting increased activity, across a variety of sectors. This indicates that market conditions are bubbling and problems are rising to the surface, with more business, creditors and individuals turning to restructuring and insolvency professionals to help them out. Acting sooner rather than later when problems arise can make all the difference, as it is highly unlikely that ignoring a business problem will make it go away."