Scottish corporate failures fall 7.6 per cent during 2015 - AiB

The latest Accountant in Bankruptcy (AiB) figures show that 828 Scottish firms failed during 2015 compared with 896 the previous year (please note that the AiB uses the financial year April to March as its base so although their current figure states Q3 this refers to October to December 2015 which we call Q4).

However, there was a 41.1 per cent increase between Q3 and Q4 and a 31.5 per cent increase on the same quarter in 2014 and this marks two consecutive substantial increases in the latter half of 2015.

Keith Anderson, a director at mlm Solutions, explained: “The fall in Scottish corporate insolvencies during 2015 is welcome and is to be expected given the relatively benign lending environment and the growth that is coming through the economy. There have been some wobbles along the way but many companies are now better managed and more aware of the potential pitfalls ahead.”

“Continued low interest rates have contributed to a mood of optimism among consumers and business owners alike. However, there should be a word of caution as these rates, despite remaining at 0.5 per cent since March 2009, must rise at some point.”

“Although corporate insolvencies are 35.2 per cent down on the 2011 peak there continues to be strong growth in Members Voluntary Liquidations (MVLs) which offer a tax efficient way of winding up solvent companies and distributing assets and profits to shareholders. MVLs are often used when closing a family, small business or tidying up a group of companies which have inactive or dormant subsidiaries. The number of MVL‘s has risen by 216.6 per cent over the last five years and this year rose by 35.8 per cent”

Mr Anderson continued: “There are new rules regarding Entrepreneurs Relief coming into effect from 6th April 2016 which will have an impact on financial distributions received in the event of the liquidation of a company where the individual shareholder is involved in a similar company following the distribution. This is encouraging many business owners to implement an MVL in order to save up to 35 per cent tax.”

“The new rules are aimed at phoenix-type arrangements to target new businesses which arise from the ashes of a liquidated company with the same owners. The changes will restrict the eligibility of business owners to receive Entrepreneurs Relief on the liquidation of a company. Companies considering winding up are running out of time to implement a MVL which will provide valuable tax relief in advance of the changes. The MVL process, including the distribution to shareholders, must be completed before 5 April to benefit from the Capital Gains Tax rate of 10 per cent.”

Mr Anderson concluded: “It is a positive sign that corporate insolvencies have fallen during 2015 but business owners should not rest on their laurels. It is clear that the economic environment remains challenging and that businesses must keep a tight grip on costs to maintain margins. Any owner who believes that their company may be at risk should take advice as soon as possible.”