The number of Scottish companies falling into administration more than quadrupled in the third quarter, new analysis shows, amid fears that worse is to come as surging interest rates and rampant inflation take a toll.

Fourteen companies based in Scotland fell into administration between July and September, up from three during the April to June period, analysis of figures in The Gazette by insolvency and restructuring practice Interpath Advisory shows.

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Alistair McAlinden, head of Interpath Advisory in Scotland, said that the practice was “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”.

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He added: “Based on our current pipeline, we would suggest that by the end of Q4 this year insolvency levels will have risen even further.”

Interpath Advisory noted the situation in Scotland “mirrors the UK picture”.

A total of 265 companies across the UK fell into administration between July and September, up from 176 during the same period in 2021 and from 243 in the third quarter of 2020. However, Interpath Advisory noted UK administrations are yet to hit the pre-pandemic level of 401 in the third quarter of 2019.

August, which Interpath Advisory noted was “traditionally the quietest month for insolvency appointments”, saw the highest monthly number of administrations across the UK since March 2020, with 105 appointments.

Blair Nimmo, chief executive of Interpath Advisory, declared this was “particularly telling”.

Interpath Advisory said the rising number of insolvencies could 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 insolvency activity.

The practice highlighted the impact of surging interest rates on companies with high levels of debt. It also flagged the effect of sterling weakness in making imports more expensive and flagged the squeeze on consumers hit by higher mortgage payments and inflation.

The practice observed that UK base rates, which were at a record low of 0.1 per cent late last year, “may well be above 5%” by next spring.

Mr Nimmo 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 under way.”

He emphasised that “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”.

Mr Nimmo added: “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.”

Mr McAlinden said: “We’re now in a situation where interest rates may well be above 5% by spring of next year, putting increased pressure on cash flows 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.”

He added: “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...

“Identifying cash pinch points and seeking advice early will be key for business to thrive and survive over the coming weeks and months.”