Corporate insolvencies in Scotland remained steady in the first quarter of 2022, as a series of compounding crises - from inflation and supply chain disruption to the impact of the conflict in Ukraine and the pandemic - continue to place pressure on businesses.
Analysis of notices in The Gazette by Interpath Advisory reveals that seven companies fell into administration in Scotland between January and March this year – at similar levels to the eight companies which went into administration in the same quarter last year.
This does not fully reflect the UK picture, however, which saw a total of 220 companies fall into administration during the first quarter – up from 189 companies during the same period in 2021.
Despite this increase however, administrations - which typically involve medium to large businesses - are still yet to return to pre-pandemic levels.
Meanwhile, liquidations - which predominantly involve smaller businesses - are back to levels seen before the pandemic.
Blair Nimmo, chief executive of Interpath Advisory, commented: “We’re certainly seeing signs that activity is on the rise following a two-year period when insolvency levels were at record lows.
“This is not surprising when you consider the vast array of issues and pressures that organisations are facing – spiralling inflation, the conflict in Ukraine, supply chain disruption, the impact of the pandemic, staff shortages, as well as trading difficulties arising from Brexit.
“Dealing with one or two of these issues at any one time is tricky enough, but to have all land at once is testing even the most brilliant of management teams.
“Nevertheless, we don’t expect to see a sudden deluge of insolvencies – rather we expect activity to tick up gradually over the course of the year.”
Across the UK, the highest number of appointments continues to be seen across the construction, industrial manufacturing, retail, and leisure and hospitality sectors.
However, there are also modest increases in the number of appointments in the transport and logistics and consumer goods sectors, including the food and drink segment.
During the first quarter, there were twice as many filings for insolvency (13 appointments) in the consumer goods sector in comparison to the previous quarter, and a 63% rise on the same period last year.
Alistair McAlinden, head of Interpath Advisory in Scotland, commented: “With companies facing significant cost inflation, it was perhaps inevitable that we would start to see a rise in insolvency levels in the consumer goods sector.
“In addition, while the multiples have been generally accepting of the need for price rises, the time lag between the immediate increase in the cost base and the implementation of new sales prices is putting pressure on working capital, particularly for smaller companies or those with weaker balance sheets.”
He added: “If not addressed, the tightening of working capital could ultimately lead to insufficient funding and potential business failure for some food and drink manufacturers.
“To avoid this, businesses will need to look closely at their management of working capital and cash, as well as ensuring they understand the true economic profitability of their product and customer portfolios.”
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