Personal insolvencies rise as business failures fall - AiB

The number of personal insolvencies (bankruptcies and protected trust deeds) in Scotland rose by 9 per cent in between October and December compared to the previous quarter, and by 2 per cent year-on-year, according to latest Accountant in Bankruptcy figures.

There were 2,691 personal insolvencies in Scotland during the last three months of 2017, similar to the 2,636 personal insolvencies in the previous year (2016-17 Q3), and 1,089 bankruptcies, a 4.2 per cent decrease on the same quarter in 2016-17.

A decrease in Full Administration bankruptcies was the main contributor to the decrease in bankruptcies; Minimal Asset Process (MAP) bankruptcies and creditor petitions both increased.

PTDs increased by 6.9 per cent to 1,602 over the same period.

Tim Cooper, Chair of R3 in Scotland, the insolvency and restructuring trade body, said: “Personal insolvencies in Scotland have been on a slow, but generally upwards trajectory since around the end of 2015, and the latest rise fits this overall trend, following a slight quarter-on-quarter fall in the previous set of figures.

“Looking across 2017 as a whole, there were an estimated 10,518 personal insolvencies in Scotland, which represents an increase of 8% compared with the full year 2016, when there were 9,748 altogether.

“The final three months of 2017 did not contain any major shocks for the Scottish economy, or for indebted individuals, but the landscape remains unsettled nonetheless, continuing the patterns seen since the start of the year. For example, unemployment remains at historically low levels, but research by the Scottish Parliament Information Centre in December estimated that 274,000 people in Scotland are in jobs classed as ‘insecure’, without guaranteed hours or income, making financial planning difficult, and increasing the risk than an unexpected expense will send a family budget into a tailspin.

“Consumer debt levels are still rising steadily, albeit at a less rapid pace than in the past, while inflation outpaced wage growth, leading to greater pressure on people’s finances. Fuel became more expensive over the second half of 2017, pushed by a rally in the price of crude oil, which will have had an impact on most households’ budgets, especially those in Scotland’s rural areas who depend on private vehicles for transport.

“The rise in the base interest rate in November from 0.25% to 0.5%, halfway through the period covered by these latest statistics, is unlikely to have had much immediate impact, although it points towards a future tightening in the consumer credit market, while many market-watchers predict that there will be further rises in the base rate over the next couple of years. This ought to act as a warning sign for people relying on rolling over their debt from one zero-percent or low-rate offer to another: access to cheap consumer finance should not be taken for granted, and it’s better to grasp the nettle now by seeking financial advice than to be caught out at a later date, with fewer options available.”

Meanwhile, company liquidations in Scotland recorded by the AiB between October and December last year totalled 202, a 10 per cent fall on the previous quarter, and a 4 per cent decrease year-on-year.

Although the figures mark a reversal after two quarters of increases, they are still not as low as in January-March 2017, when just 155 corporate insolvencies were registered.

Tim Cooper, Chair of R3 in Scotland, added: “In all, over 2017, the AiB recorded 15 per cent fewer liquidations compared with 2016 (782 in 2017 against 920 in 2016). While 2017 may not go down as a banner year for the Scottish business community, the decrease in liquidations gives some reassurance that the economy is still ticking over.

“The AiB does not record business rescues – that is, administrations or Company Voluntary Arrangements – so this is an incomplete picture. It’s important to remember that insolvency isn’t necessarily the end of the road, and plenty of businesses entering an insolvency procedure will be rescued.

“Traditionally, the period leading up to the festive season is marked by an increase in spending, as people look to treat their loved ones to a bumper Christmas. However, it seems that festive consumer spending in 2017 was subdued in comparison to previous years, with many people perhaps feeling more cautious about splashing the cash or flashing the plastic, while the growth in popularity of Black Friday, in late November, will have encouraged many to stock up on bargains, rather than paying full price. Recent troubles in the retail sector indicate that many shops have been hurt by a decline in their margins, along with lower footfall, as shoppers moved online for instant price comparisons, avoiding the cold and the rain on the high street.

“The Scottish Government surveyed consumer confidence in October-December 2017 at -4.3 points, a fall of 1.2 points compared with the previous quarter, and firmly in negative territory – which indicates that the end of 2017 was a tough time for many firms. Scotland’s GDP grew more slowly than the UK’s as a whole in the third quarter of 2017, at 0.2 per cent , which will not have given businesses much momentum going into the holiday season. However, the rush of spending unlocked by the holidays may have helped struggling firms paper over the cracks, while businesses have also benefited over 2017 from a relative ease in accessing funding, which has meant that underlying structural problems have not been properly addressed in many cases.

“Inflation increased over 2017, affecting the price of raw materials, while sterling’s weakness against other currencies continued to hurt importers. Businesses also had to contend with costs associated with pensions auto-enrolment and a rise in the National Living Wage. Those companies with salary bills of over £3 million were also liable for the Apprenticeship Levy, and any firm with a bricks-and-mortar presence had to factor business rates in to their budget.

“You could forgive Scottish firms – along with their peers across the UK – from feeling that the corporate landscape is getting trickier to negotiate. Companies looking to put themselves on a firm footing for 2018 and beyond should consider speaking to a licensed and professional business advisor, making sure to check their credentials.”