‘230 Scots a week will go bust in 2019’

Eileen Blackburn

The firm is predicting that around 12,000 Scots will have been sequestrated (the Scottish term for bankruptcy) or taken out a Protected Trust Deed (PTD) by the end of 2018 and that a similar figure or more will go bust by the end of 2019.

Last year will have the highest level of personal insolvencies since 2013 with the figures rising steadily over the last four years. Given the extremely benign and favourable interest rates it is a sign that there remains an underlying indebtedness within large parts of Scottish society.

Rising utility bills, higher food costs and frozen wages have all meant that many indebted individuals are unable to clear debts but are simply paying interest on their debts. Any change in their circumstances either through unemployment, divorce, ill health or some other reason will mean that these individuals are unable to cope and will quickly succumb to bankruptcy. These so called ‘zombie’ individuals are living with long term accumulated debts but cannot repay any of the capital.

Eileen Blackburn, head of restructuring and debt advisory with French Duncan LLP, said: “Although employment levels are extremely high, and many individuals will have the lowest mortgage interest of their life it is clear that for thousands of Scots there is an underlying indebtedness which they are unable to address. They may have acquired this debt over a period of many years but cannot do anything but pay the monthly interest. Any slight change in their circumstances and they are quickly thrown into a financially precarious position.”

“A reduction in overtime payments or slight increases in living costs can tip these individuals over the edge. They may then use very high interest short term loan companies to cover themselves, but this simply exacerbates, rather than resolves, the situation and the debts rapidly accumulate until they are impossible to pay, and the individual will be made bankrupt.”

Ms Blackburn continued: “Over 7,000 of the personal insolvencies in 2018 were protected trust deeds whose numbers have grown rapidly over the last few years and by 21.1 per cent in the last year alone. These are often described as debt solutions for individuals with assets and jobs, so it is an indication that long term indebtedness occurs across society among people with homes, jobs and assets but are unable to meet punitive interest rates on historic debt.”

“Worryingly business failures are also rising dramatically increasing by an estimated 25.8 per cent in 2018 compared with 2017 and the highest annual figure since 2012. I would expect around 20 Scottish businesses a week to fail in 2019 which indicates difficulties in certain sectors of the Scottish market. Undoubtedly uncertainty over Brexit, increased competition and downward consumer pressures on prices are all factors in causing business failure but these figures reveal that certain sectors are suffering disproportionately as specific market changes impact upon them.”

“Construction, retail and casual dining already accounted for 41.6 per cent of all corporate failures in the first three quarters of this year and this highlights issues related to their specific markets as well as wider economic concerns. Lending to the construction sector is contracting while retailers and casual dining outlets are experiencing major shifts in consumer attitudes which have impacted seriously on these sectors resulting in many major closures. I believe that 2019 will continue to see serious problems in the High Street impacting upon retailers and restaurants whilst construction will face more difficulties in an uncertain and volatile marketplace.”

Mr Blackburn concluded: “The concern is that we have both rising personal and corporate insolvencies at a time when the economy is relatively benign, personal and corporate lending is cheap, and unemployment is low. Under these circumstances you would expect insolvencies to be falling. That they are rising quite rapidly in both personal and corporate is a worry for the coming years as more Scottish individuals and firms will go bust.”