Scottish personal insolvencies jump by almost a quarter

The number of personal insolvencies (bankruptcies and protected trust deeds) in Scotland have risen by nearly a quarter year-on-year, according to the Accountant in Bankruptcy’s latest data.

While personal insolvencies fell by 5 per cent in Q2 2018-19 compared to the previous quarter, they rose by 23 per cent compared with Q2 2017-18 (July-September 2017).

There were 3,067 personal insolvencies (bankruptcies and protected trust deeds (PTDs)) in Scotland in 2018-19 Q2, compared with 2,493 in 2017-18 Q2.

The figures show 1,150 bankruptcies were awarded during the last quarter, a 0.3 per cent increase on the same quarter in 2017-18.

PTDs increased by 42 per cent to 1,917 over the same period.

There were 638 DPPs approved under DAS compared with 662 in the same quarter of the previous year.

A total of £9.2 million was repaid through DAS during this quarter, compared with £9.4 million in 2017-18 Q2.

Tim Cooper, Chair of R3 in Scotland, the insolvency and restructuring trade body said: “The small fall in Scottish personal insolvencies over the last quarter is in some ways unsurprising, as the total in the April-June period was unusually high. However, the underlying trend in personal insolvencies is still an upward one, as the comparison with the same quarter in the previous year shows.

“The recent real-terms growth in wages when measured against inflation has helped ease the pressure on many people’s budgets, but the growth in wages has hardly been spectacular, and people’s incomes have not fully recovered since the global financial crisis of ten years ago. The considerable rise in the cost of living over the last decade means that strains on personal finances are still common. There are, however, signs that the unemployment rate has bottomed out, which may cause further rises in pay, and which could reduce some of the underlying upwards pressure on insolvency numbers.

“Once again, it is worth mentioning the rise in fuel prices, which are currently at their highest point for four years, and which will be causing headaches for many Scots. Consumer debt levels are still high, and although consumer finance is still relatively easy to access, future interest rises could cause lending to be tightened, while a higher cost of servicing debt will wipe out much of the relief gained from any growth in wages. This in turn could lead to a reckoning for many people who have no choice but to rely on rolling over their debts, paying only the interest but not reducing the amount they owe.

“Overall, there is a feeling of uncertainty in the air, and many people will be feeling that their finances are outside their control. Our advice for anyone in this situation, and for anyone who feels that their personal financial situation isn’t giving them any room for manoeuvre, is to seek qualified, professional and expert advice, as the sooner problems are addressed, the more can be done to help.”

Mr Cooper said: “The quarter-on-quarter fall in the number of corporate insolvencies is the second decrease in a row in the quarterly figures, but it is still too soon to say whether this fall will be sustained in coming months. There were still, however, more corporate insolvencies than in the same quarter last year, which underlines that many parts of the Scottish business community are experiencing difficult trading conditions.

“The July-September numbers are coming off the back of a relatively strong performance for the Scottish economy in the April-June period, when GDP grew by 0.5%, which will have helped many companies. The construction sector in particular will have breathed a sigh of relief as its output grew by 1.8%, rebounding from the poor performance in the first three months of 2018.

“Consumer sentiment has been in negative territory in Scotland since the second half of 2016, while house price growth has been positive but not outstanding; both of these factors will have constrained consumer spending, which underpins a large portion of overall economic activity, and shows that no company reliant on consumer spending can afford to be complacent.

“The predicted rises in interest rates will restrict the budgets of home owners and consumer debtors, with debt servicing costs possibly outstripping further wage growth; businesses will feel the knock-on effects of decreased consumer confidence, and tighter household finances.

“In precarious times, being prepared for different scenarios is always a smart move, and seeking professional advice from a qualified and regulated source can help companies stay nimble, and geared up for whatever is thrown at them next.”

Eileen Blackburn, head of restructuring and debt advisory at accountants French Duncan LLP, explained: “The fall in the number of corporate insolvencies in the third quarter is welcome but still at a relatively high level and means that we are on target to have almost 1,000 corporate failures this year which has not happened since 2012 (and has only happened in the three years of 2010, 2011 and 2012) indicating a trend of rising insolvencies and business collapse. There have already been 736 corporate failures this year when there were 780 for the whole of 2017.”

Ms Blackburn continued: “While general economic issues may be playing their part including uncertainty over Brexit, benign interest rates, and extremely low unemployment are not usually factors at play in such high failure rates. These figures reveal that certain sectors are suffering disproportionately as specific market changes impact upon them.”

“Construction, retail and casual dining already accounted for more than 40% of all corporate failures in the first two 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.”

Ms Blackburn concluded: “There are always periods when corporate failures rise and fall but this one is unusual. The last peak was in the years immediately after the financial crash when such outcomes were to be expected. But this time it is happening when interest rates are benign, when employment is at a 43-year high, and when the economy is growing albeit at a relatively slow rate. The concern is whether this highlights an underlying serious problem with the economy or whether it is simply a temporary blip as markets realign themselves and settle at their own level. The next few months will be telling but, in the meantime, I think that many more Scottish firms will go bust until greater stability can be established in the market.”