Corporate insolvencies in Scotland fell by 39% during the first six months of 2022, despite spiralling inflation, rising interest rates and energy costs, supply chain disruption and geo-political uncertainty piling pressure on businesses.
Analysis of notices in The Gazette by Interpath Advisory reveals that a total of 11 companies fell into administration in Scotland from January to June 2022 – down from 18 during the same period in 2021.
This does not reflect the UK picture , however, which saw a total of 451 companies fall into administration in the first half of 2022 – up from 312 companies during the same period last year, but still not back at the pre-pandemic levels of 655 in the first half of 2020 and 686 in the first half of 2019.
The rising number of UK insolvencies can be seen across a wide range of sectors, with building and construction, industrial manufacturing and retail industries experiencing the sharpest rises.
While the lower level of administration appointments in Scotland is welcome, concerns remain that Scotland may follow the UK trend of a rise in insolvencies over the coming months as economic factors continue to hit Scottish businesses.
Blair Nimmo, chief executive of Interpath Advisory, said: “Inflation - both in terms of input costs and wages - is proving to be a particular challenge, as organisations tread that fine line of how much they can pass rising input costs on to customers, while wrestling with the conundrum of balancing pay rises against double-digit inflation.
“With five consecutive interest rises over recent months, and undoubtedly more to come, plus fuel and energy costs continuing to rise, there’s no surprise that both consumers and businesses alike are thought to be preparing to batten down the hatches in the autumn.”
Alistair McAlinden, head of Interpath Advisory in Scotland, commented: “Many businesses are now spending the cash buffers built up over the last couple of years, and so from a cashflow perspective, appear to be reasonably healthy.
“However, their balance sheets and profit and loss statements are weak, and the reality is that it won’t be too long before cash outflows catch up.”
He explained that anecdotally, business advisors are now starting to see two things.
First, in certain circumstances, institutions are becoming more cautious in their approach to lending.
“Secondly, in recent weeks we have seen instances of enforcement action being taken and winding-up petitions being issued,” said McAlinden. ”While it’s too early to say that this is becoming a trend, it’s certainly notable given the moratorium on enforcement that was in place during the pandemic.”
Nimmo concluded: “Speaking from our own experience at Interpath, we are certainly starting to see an uptick in activity, both across our insolvency teams, but also our value creation teams, who are typically brought in at the earlier stages of the cycle, when businesses first start to experience signs of stress.”
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