Michael Reid

New figures from Creditsafe showed 141 new Scottish administrations and liquidations in May – the highest number since December 2022 when 142 cases were recorded.

Michael Reid, Aberdeen-based partner and insolvency specialist at MHA, which has Scottish offices in Edinburgh and Aberdeen, believes the Creditsafe data may well highlight increased HMRC action following a lull in them pursuing companies during the Covid epidemic.

One impact of the increased number of company insolvencies is scrutiny of the Covid Bounce Back loan scheme. The scheme was introduced to allow a business to borrow between £2,000 and £50,000, at a low interest rate, guaranteed by the government.

The bounce back loans were provided on the condition that they were not to be used for personal purposes, but could be used, for example, to purchase a company asset such as a vehicle, if it would provide an economic benefit to the business and aid survival prospects.

The money lent must be paid back, over six or 10 years, with payments starting 12 months after the company received the loan.

Upon review of the new figures, Mr Reid said: “In effect, HMRC has resumed normal service. We are seeing them back to where they were pre-Covid in terms of regular liquidation and sequestration activity.

“During the pandemic, there was a feeling that businesses had to be given every chance to survive but now there is a need to ensure that all businesses are looked at fairly and objectively.

“Both administrators and liquidators are under an obligation to look at bounce back loans. Was the right amount claimed? Was it used for legitimate business purposes?

“The increased level of corporate insolvencies can be seen in a positive light in terms of looking at those who abused the system. It’s a matter of fairness for those companies who act properly, pay their taxes and try to do the right thing compared to those who knowingly abused the system. After all, it is the taxpayer and other companies who are paying for Covid breaches.”

So, which sectors are hardest hit in Scotland?

“Retail and leisure are highly impacted sectors. When there are financial pressures on the public, the likes of shopping and gym memberships are often first to go”, added Mr Reid.

“Construction is another hard-hit area – across everything from home extensions to larger new housing developments. Engineering, as we have seen recently in the north-east of Scotland, is affected by the decision of larger entities to look elsewhere such as the Far East for cheaper supply chain options. This is understandable when one considers the need to ensure a stable business and supply chain.”