Scotland faces rising corporate insolvencies amid economic challenges

23/10/2024
Iain Fraser, Chair of the Scottish Technical Committee (Credit: R3)

In recent months, Scotland has witnessed a notable increase in corporate insolvencies, reflecting broader economic challenges.

According to recent data, there has been a 10% rise in the number of companies entering administration or liquidation.

This trend highlights the financial pressures faced by businesses across various sectors, exacerbated by factors such as inflation and changing consumer behaviours.

Q2 2024 Statistics

The recent statistics on corporate and personal insolvencies in Scotland reveal contrasting trends that underscore the complex financial landscape businesses and individuals are navigating.

In the second quarter of 2024-2025, corporate insolvencies, including liquidations and receiverships, rose by 10.6% compared to the same period in the previous year, reaching a total of 313 cases.

This increase is also evident when compared to the previous quarter’s total of 283 cases (April-June 2024). In contrast, personal insolvencies, encompassing bankruptcies and protected trust deeds, saw a decrease of 9.1% from the previous year, totaling 1,891 cases.

This decline is mirrored by an 8.3% reduction from the previous quarter’s total of 2,063 cases (April-June 2024). 

These figures highlight the divergent paths of corporate and personal financial health in Scotland amidst ongoing economic challenges.

R3 in Scotland respond

Commenting on the Scottish insolvency statistics, Q2 2024-2025 (1 July 2024 to 30 September 2024) Iain Fraser, Chair of the Scottish Technical Committee at R3, the UK’s insolvency and restructuring trade body, and a Partner at FRP Advisory, said:

“Despite the increase in corporate insolvencies, Scotland’s economy has shown some resilience of late – with the most recent figures showing a GDP growth of 0.3% in July 2024.

“This growth has mainly been driven by the manufacturing sector and information and communication services, along with a boost in consumer spending from major summer events such as the Euros and the Fringe Festival.

“Inflation has dropped considerably to 1.7%, and this feels a world away from the eye-wateringly high figures we were grappling with one and two years ago.

“With unemployment in Scotland falling below the UK average, interest rates falling and inflation easing, there are reasons to be optimistic.

“However, there is an air of uncertainty for businesses as the Autumn Budget approaches at the end of this month. 

“Directors and business owners will likely be looking to the upcoming Budget and to the Scottish Government for clarity before they make any big decisions about the future of their businesses.

“Whilst Scotland’s economy has shown resilience, it would seem Scotland’s economic upturn has come too late for a number of businesses as the increase in Creditors’ Voluntary Liquidations has driven corporate insolvency levels in Scotland to their highest levels since Q4 22-23.

“From a solvent perspective, Members’ Voluntary Liquidations (MVLs) have also increased to their highest figure since Q1 23-24, and this suggests there has been a rise in the number of solvent businesses shutting.

“This is perhaps due to director fatigue after four years of economic turbulence and the effect this has on the business climate, or directors taking action to reorganise their businesses ahead any potential tax changes in the Budget later this month.

“Looking at the personal insolvency numbers, both the quarterly and yearly fall has been driven by a reduction in bankruptcies and Protected Trust Deeds.

“Bankruptcy numbers have dropped to their lowest level since Q4 2021-2022, which suggests that more individuals may be seeking earlier intervention for lower levels of debt.

“Looking at the wider trend over recent quarters, insolvency numbers have fluctuated, with totals reaching 2,101 in Q1 2023-2024 and falling to 1,886 by Q4 of the same year, only to rise again in the following quarter.

“While wages initially rose to keep pace, the rising cost of everyday essentials and bills is now outpacing income growth.

“The recent rise in energy prices will also likely be a concern for some individuals across Scotland as we head into the colder months.

“With heating becoming a necessity, higher energy bills could stretch already tight budgets even further, leaving some households struggling to cover their expenses, and potentially relying on forms of credit to get by.”

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