THE number of Scottish businesses which entered insolvency climbed by seven per cent last year, as the worst fears about the fall-out from the oil and gas downturn were not realised in the north east.

But, while conditions for companies in Scotland have been described as “relatively stable”, business owners are expected to behave cautiously until Article 50 is triggered and there is clarity over what Brexit means.

Blair Nimmo, head of restructuring at KPMG, delivered this assessment as the latest figures collated by the accountancy giant found there were 969 insolvencies in Scotland last year, up from 904 in 2015.

Within that the number of company liquidations was up by eight per cent, at 870, compared with the previous year, while the administrations tally dropped three per cent to 99. Administrations tend to affect larger organisations.
While the insolvency total grew last year compared with 2015, KPMG said there was 26 per cent fall in appointments in the last three months of the year, to 206. This was down 27 per cent on the previous quarter.

Mr Nimmo said there was no specific sectoral or political reason why the October to December period had seen such a drop in insolvency appointments, noting the “doom and gloom predictions” which followed the Brexit vote and the Trump election win have yet to materialise “for the most part”.

However, he acknowledged the collapse in sterling versus the US dollar and the Euro since the UK voted to leave the European Union will “undoubtedly impact” firms which import raw materials goods and services in these currencies for sale in the UK.

And, although he pointed out unemployment is low and conditions for borrowing money are favourable, he said the outlook will remain uncertain until the UK starts the process of exiting the EU.

Mr Nimmo said: “Intellectually you would say the uncertainty and disruption caused by Brexit and Trump does play in companies’ thoughts.

"If you are thinking of your strategy at the moment... you have to be mindful the game could change quite dramatically for you over the next 12 to 24 months.

“That would suggest most people at the moment will pursue a cautious strategy, so you might not see too much activity on the acquisition front until people know how things are going to play out.”
Mr Nimmo said sentiment was improving in the oil and gas sector, stating the number of insolvencies relating to the lower Brent crude price has “simply not materialised”.

With insolvencies not having occurred in big numbers when oil traded as low as  $27 a barrel last year, he said widespread failures were unlikely to occur with the price moving to $60. He pointed to the “drastic action” taken by firms to cut costs in the aftermath of the crude price plunge as a mitigating factor.

“While most people say 2017 will be just as hard as 2016, they think at least it has bottomed out,” he said.
Mr Nimmo’s comments came in the week the Federation of Small Businesses revealed Scotland and London, which voted against Brexit, were the only parts of the UK where confidence among small firms fell in the last quarter.

He said there are “positive signals” in the economy, including low unemployment and cheap borrowing rates, stating sterling’s weakness is the only major “downside”. But he said that is “not how it feels” on the ground, adding: “Most people are being pretty cautious.”