THE number of Scottish corporate insolvencies in the first quarter was down 19 per cent on a year earlier, with business failure levels now back at “normal” levels, analysis by KPMG shows.

Blair Nimmo, head of restructuring at KPMG, declared the accountancy firm had seen the return of “some stability” to the Scottish oil and gas sector as the latest figures were published.

According to KPMG, the total number of business insolvency appointments in Scotland in the first quarter was 170, down from 211 in the same period of last year. This year-on-year comparison strips out the effect of seasonal fluctuations in insolvencies.

Loading article content

In the fourth quarter of last year, there were 206 corporate insolvency appointments in Scotland.

Read More: Ian McConnell: Will better times for oil services sector mitigate the Brexit damage?

Mr Nimmo said the fall in insolvencies in the first quarter was not a surprise. He cited “extremely low” benchmark interest rates and low unemployment as factors that had kept insolvency numbers down, and added that the economy was “fairly stable”.

He said: “While insolvencies are inevitable in a corporate environment, the latest statistics present a good picture for Scotland, and we have returned to what we would call ‘normal’ or ‘business as usual’ levels.”

Mr Nimmo noted there would always be business failures because of the likes of poor management or a poor business concept, or unforeseen events.

He meanwhile emphasised that, in the period since the North Sea downturn began in 2014 amid plunging global crude prices, insolvencies in the oil and gas sector had not reached the level expected.

He said: “We have seen some stability return to the oil and gas sector and, while there remains some critical issues, at no point over the past three years have we experienced the level of sector-related insolvencies which might have been expected, given the drastic reduction in the oil price. The general consensus is that the oil price has broadly bottomed out, subject to an unforeseen event.”

Mr Nimmo added: “I think oil and gas, when you saw the price go from over $100 [per barrel] to the high-$20s at the beginning of last year, any sector facing that cut in its selling price you assume would suffer real pain in terms of distress and ultimately insolvencies. That simply hasn’t proven to be the case.”

He cited swift cost-cutting by companies in the sector, and a supportive stance by debt and equity funders as reasons why oil and gas-related insolvencies had not reached the levels anticipated.

Mr Nimmo said: “I think a lot of the businesses were able to take fairly early action to correct their cost base in a fairly material way, which wouldn’t necessarily have been able to be done in all sectors. Maybe the supply chain peculiar to oil and gas sector could facilitate that 30 per cent to 40 per cent cut in supply costs that was actually achieved.”

He added: “Most of the stakeholders in those businesses have been pretty supportive. That ranges from private equity to the much-maligned banking sector.”

While noting the return of some stability in oil and gas, he highlighted continuing challenges facing this sector.

Mr Nimmo said: “Don’t get me wrong, I think 2017 will continue to be a very tough year for them. There are some areas that will take some time to get back to anywhere near where they were before.”

There were 151 liquidation appointments in the first quarter. And there were 19 administration and receivership appointments.