Scottish administrations rise as economic headwinds start to take their toll

Blair Nimmo (Chief Executive of Interpath Advisory)

THE NUMBER of companies filing for administration across Scotland jumped significantly in the third quarter of 2022, as economic headwinds continued to buffet businesses the length and breadth of the country.

These findings were identified by Interpath Advisory in their latest analysis of notices in The Gazette. A total of 14 companies based in Scotland fell into administration from July to September 2022 – up from 3 during April to June 2022.

This mirrors the UK picture which saw a total of 265 companies fall into administration from July to September 2022 – up from 176 during the same period in 2021, and up from 243 in Q3 2020. However, administrations are yet to hit the pre-pandemic levels of 401 in Q3 2019.

August – traditionally the quietest month for insolvency appointments – saw the highest monthly number of administrations across the UK since March 2020, with 105 appointments. 

The rising number of insolvencies can be seen across a wide range of sectors, with building and construction, industrial manufacturing, leisure and hospitality, retail, and the food and drink industry all witnessing increased activity.

Blair Nimmo, Chief Executive of Interpath Advisory, said: “The summer months often herald a quieter period for corporate insolvencies, and so the fact that August witnessed the highest monthly total in more than two years is particularly telling.

“We know that companies across Scotland have been wrestling with a myriad of issues for some time, from rampant inflation, to supply chain challenges, to labour shortages, so this is perhaps the first real evidence that a significant shift in restructuring activity is now underway.”

He added: “And let’s remember: the bulk of administrations seen in the past quarter landed well before the economic and political storm that we’ve witnessed in the past few weeks.

“The impact of rising interest rates, currency and gilt yield movements, and the increase in energy prices from 1 October are yet to feed through, but undoubtedly will only serve to compound the extraordinary pressure that businesses were already under.”

Alistair McAlinden, Head of Interpath Advisory in Scotland, continued: “We’re now in a situation where interest rates may well be above 5% by Spring of next year, putting increased pressure on cashflows for any Scottish business with high debt levels, and especially those with an unhedged position. Further, with suppliers trying to navigate the impact of a weaker Sterling upon imports, and consumers adjusting to rising mortgages and lower disposable income, businesses are going to be squeezed in all directions.

“While the UK Government has intervened to provide certain relief in respect of rising energy costs and new loans for start-ups and small businesses, for many businesses, some difficult choices lie ahead.”

Alistair McAlinden concluded: “Speaking from our own experience at Interpath, we are certainly seeing a rise in activity across Scotland, as evidenced most recently with administrations in the oilfield services and construction sectors and, most notably, 10 subsidiaries within the Arjowiggins paper mill group. Based on our current pipeline, we would suggest that by the end of Q4 this year insolvency levels will have risen even further. Identifying cash pinch points and seeking advice early will be key for business to thrive and survive over the coming weeks and months.”

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