Tim Cooper

The number of corporate insolvencies (liquidations and receiverships) in Scotland rose by 15% in October-December 2020 compared with the previous quarter (July-September 2020), and fell by 42% compared with October-December 2019.

Overall, personal insolvency numbers (bankruptcies and protected trust deeds) in Scotland for the whole of 2020 were 33% lower than in 2019, at 9,070 (2020) against 13,612 (2019).

The number of personal insolvencies (bankruptcies and protected trust deeds) in Scotland rose by 16% in October-December 2020 compared with the previous quarter (July-September 2020), and fell by 38% compared with October-December 2019.

Tim Cooper, chair of R3 in Scotland, said: “2020 was a year like no other in living memory. The pandemic upended many normal ways of living and doing business, and took a terrible toll on our communities.

“Against this background, it is no surprise that the economy has suffered, with Scotland’s GDP in November 7.1% below the level in February 2020. But it may come as some surprise to many to find that both corporate and personal insolvencies in 2020 were far lower than in 2019, in contrast to an underlying trend in recent years towards annual growth in insolvency numbers.

“The lower levels of liquidations on the corporate side seen in 2020 can mainly be attributed to the support provided to companies by the Government in the form of the furlough scheme, the various types of state-backed loans on offer, the ability to defer VAT, rates relief for Scottish retail, hospitality and leisure businesses, and the suspension of commercial evictions and winding-up petitions.”

He continued: “In addition, creditors such as banks and finance companies have voluntarily shown high levels of forbearance, as they have recognised the need to work with their clients, to secure the best possible outcome for all parties. This is to be welcomed.

“However, it is clear that all is far from rosy for Scottish companies, especially those in sectors hardest-hit by the pandemic, and the changes it brought to everyday life. A retailer might be able to expand its online offering, for example, but a hotel room cannot be enjoyed through a screen. Our energy sector has been hard-hit by the collapse in demand for oil and gas, which has a knock-on effect in nearby communities in the North East where the industry is concentrated.

“While the Scottish business community has in many cases adapted admirably to the challenges at hand, this will only go so far if operations are suspended, premises are closed, or trading is impeded. The question of what will happen when current protections expire, and the usual triggers for corporate insolvencies resume, is one that should concern us all. R3 has worked hard in 2020 to promote tools which could assist SMEs, particularly in Scotland, in gaining access to simple, streamlined Company Voluntary Arrangements, for example, to give them the time that will be needed to emerge from the pandemic and return to viable business levels whilst managing debt burdens accumulated over the lockdown periods.”

Mr Cooper added: “The vaccine roll-out will undoubtedly raise the hopes of businesses of all shapes and sizes, even if a return to ‘normal’ life is still some way off. Looking ahead, there is still a large amount of uncertainty in the air, on everything from the end-date of the current lockdown, to the wider implications of Brexit, which has already hampered some of our fishing businesses’ ability to sell their products in the EU. It will be a challenging year for businesses, and the insolvency and restructuring profession in Scotland stands ready to offer practical advice to directors.

“On the personal insolvency side, the pandemic has caused unemployment numbers to rise, while the number of people claiming benefits almost doubled in November 2020 compared to November 2019, and this has shown up in the numbers, with a jump in bankruptcies and Protected Trust Deeds in the final quarter of 2020 compared with Q3. Mitigating this, however, are continuing low inflation rates, as well as Government support for many people’s incomes through the furlough scheme and support for self-employed people – although these are due to run out soon, leaving many facing a cliff’s edge in their finances.”

He concluded: “It is more important than ever to get good, reliable, and trustworthy advice from a qualified and regulated source if your or your company’s finances are in trouble. Make sure to check the credentials of anyone offering unsolicited advice, as it is a sad fact that rogue advisors tend to pop up in greater numbers during times of turmoil. Getting solid, impartial advice from a reputable source at the earliest opportunity is vital.”