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Corporate insolvencies up by one-third year-on-year

SCOTTISH corporate insolvencies in the three months to June were up more than one-third on the same period of 2013, against a backdrop of record low interest rates and improving economic conditions, official figures have revealed.

Insolvency specialist Bryan Jackson, business restructuring partner at accountancy firm BDO, described the year-on-year rise in the number of corporate insolvencies as "unwelcome" and believed many of the casualties would be small firms.

Mr Jackson also warned that it remained to be seen how many businesses had ensured they could cope with the anticipated rise in UK base rates from 0.5 per cent, where they have been since March 2009. Economists expect the first rate rise to come later this year or in early 2015.

The Accountant in Bankruptcy's latest figures, published yesterday, showed there were 250 corporate insolvencies in the second quarter of 2014. This total is up 35.9 per cent on the same period of last year.

This year-on-year comparison strips out the impact of seasonal factors. The number of corporate insolvencies in the second quarter was also up from 244 in the opening three months of this year and from 229 in the October-to-December 2013 period. The 244 figure for the three months to March was up 70.6 per cent on the first quarter of 2013.

The AiB corporate insolvencies total for the three months to June comprises 188 compulsory liquidations and 62 creditors' voluntary liquidations. The figures do not include administrations.

Mr Jackson said: "The rise in the number of corporate insolvencies in the second quarter is unwelcome but continues a trend we have witnessed over the last few quarters. Many of these companies are fairly small and may even be shell companies for businesses that formerly existed but have now been wound up."

Forecasting challenges ahead, he added: "With the economic recovery beginning to take hold it remains to be seen how many businesses have ensured they are financially secure enough to cope with interest rate rises, both in terms of rising costs for themselves and the impact it will have on consumer confidence and spending. In addition, with the eurozone experiencing a more limited recovery than the UK, the growth prospects of businesses dependent upon such markets could be hampered."

He also voiced concerns about the housebuilding sector. And he urged businesses to act to ensure they could meet future costs.

Mr Jackson said: "Although there are many positive signs in the economy, there are still concerns that some sectors are experiencing patchy growth. Housebuilding, for example, is on something of a rollercoaster from the very low point of the last few years to some peaks funded by central government lending. Flexibility is essential and businesses need to act now to cover their future costs, rather than wait until debt has been incurred and then try to return to financial stability."

Yvonne Brady, head of corporate restructuring at law firm HBJ Gateley, saw positives in the rise in corporate insolvencies.

She said: "A modest rise in corporate insolvencies is to be expected as part of an ongoing economic recovery. Businesses which are not strong enough to begin trading more robustly will fold as part of a normal process of post-recession consolidation.

"This is in fact a positive sign that the market is reshuffling and preparing for a new growth phase. Weaker companies will be forced to close while stronger ones will fill the gaps left in the market by these exits. There might also be a rise in mergers as businesses amalgamate in order to protect profitability."

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