Tim Cooper

The number of corporate insolvencies (liquidations and receiverships) in Scotland fell by 31% in January-March 2021 compared with October-December 2020, and fell by 63% compared with January-March 2020, according to the latest Scottish Statutory Debt Solution Statistics.

The number of personal insolvencies (bankruptcies and protected trust deeds) in Scotland fell by 19% in January-March 2021 compared with October-December 2020, and fell by 47% compared with January-March 2020.

The first quarter of 2021 in Scotland was spent in lockdown, with the majority of the population under the strictest rules, and Scotland’s overall economic performance is forecast to have reflected those conditions, with a predicted GDP fall of over 5%.

Yet we are still seeing levels of corporate and personal insolvencies which are far below where they were this time last year, and even below where they were in the previous quarter, in a form of suspended animation. This cannot last forever, though, and it is clear that there are many businesses whose entire operating model has been holed below the waterline by the pandemic – at some point, they are very likely to sink.

The first quarter of 2020 was the last time that economic activity – and life in general – was anything like ‘normal’, for the most part. The operation of the courts, which are required for many types of insolvency procedure, has been severely curtailed for over a year now, which has limited the number of insolvencies which can proceed.

Another crucial reason for lower-than-expected levels of insolvency is the direct and indirect support that has been provided to businesses and individuals, from straight cash transfers, such as the furlough scheme, to less visible but just as important interventions, like the ban on commercial evictions.

However, we now have end-points in sight for all of these support mechanisms, meaning that many company directors have some serious planning to do if they want to be able to meet their financial obligations over the coming year. This will be an especially acute point for any companies which have taken on Covid-related Government loans, with repayments starting a year after they were first taken out – which will be right about now for many businesses.

The unemployment rate, meanwhile, has remained relatively steady since the end of 2020, although it is younger people in Scotland who are more likely to be unable to find work, with a consequent risk to their future financial prospects.

If the gradual opening up of the economy, enabled by the vaccine rollout, proceeds as planned, this will be a lifeline to many Scottish businesses, especially in the tourism and hospitality sectors. The prospect of a summer with something approaching normal trading will be a huge boost to these incredibly important sectors.

Inflation is ticking upwards, which could erode budgets among people whose finances are already stretched, including those on furlough. There is still a danger of a ‘k’-shaped recovery, with people whose jobs allow them to work from home able to boost their finances with savings, while others who are in insecure roles will be in much less comfortable circumstances.

It can feel scary to take that first step and talk to someone about your own or your company’s finances, but speaking to a qualified and reputable advisor and putting a plan in place as soon as trouble rears its head is absolutely key. The longer you leave a financial problem, in the hope that it will somehow sort itself out, the more your options will narrow, so early action is vital – and much less scary than the alternative.