Company failures on the rise

THE NUMBER of Scottish-registered companies going to the wall increased for the second successive period during the three months to September, according to new figures from the Accountant in Bankruptcy.

The Scottish Government agency said it had received 268 receivership or insolvency notices during the second quarter of the financial year, an increase of 45% on the previous period.

However, the figure marked a 2.2% decrease on the same time last year, as this year’s rising trend contrasts with 2012’s declining number of casualties.

Last year, corporate insolvencies peaked at 420 in Q1, before steadily dropping to a long-term low of 143 during the three months to March.

However, the figure was soon on the rise again, climbing to 184 in the first quarter of this financial year.

Accountancy and restructuring specialist BDO said the rise was “unwelcome, if not unexpected, news”.

“Many companies have simply been existing for some time, barely maintaining solvency in the hope and expectation that an upturn in the market will be around the corner,” said partner Bryan Jackson.

“These firms, sometimes called ‘zombie’ businesses, will have been in the doldrums for several years and a slight change in circumstance, such as the loss of a key customer, could push them over the edge.”

He warned of more failures in the weeks and months ahead, as markets “adjust to a different operating system.”

However, Yvonne Brady, partner and head of corporate restructuring at law firm HBJ Gateley, said the increasing number of failures actually pointed to better conditions for the economy.

“The businesses that were in the best shape have survived the downturn and are now gearing up for growth by making acquisitions and purchases,” she said.

“As poorer companies fail, this creates a market for their assets and this is why we are seeing a rise in insolvencies as creditors see an opportunity to pursue debts.

“Although at first glance this may look bad, the current level of failures actually indicates improving conditions in the market. “Resurgent economies often experience a spike in insolvencies as the weaker players are no longer able to compete against stronger competitors and that is precisely what we are seeing here.”

AiB also revealed a 16.1% year- on- year decrease in personal insolvencies, including bankruptcies and protected trust deeds, during the second period of the year — a drop of 14.7% on the previous period.

It said the longer-term trend continued to a show a “general decline” since the aftermath of the banking crisis.

The number of repayment programmes arranged under the debt arrangement scheme reached 1,170, a slight decrease on the previous quarter but a 5.4% increase on the same time last year.

“Although this may look bad, the current level of failures actually indicates improving conditions.” Yvonne Brady, HBJ Gateley

Enterprise minister Fergus Ewing, who has responsibility for insolvency and debt management, said the Scottish Government would “continue to take action to provide the best possible debt solution services to help those people struggling with debt.”

Bryan Jackson.