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‘Sharp rise’ in Scottish corporate insolvencies
Scotland insolvency statistics Q4 2021-2022 – a professional response
Richard Bathgate Chair, R3 in Scotland
Overall, corporate insolvency numbers (liquidations and receiverships) in Scotland for Q4 2021-2022 were 164% higher compared with Q4 2020-2021, at 240 (2021-2022) against 91 (2020-2021). The number of corporate insolvencies
(liquidations and receiverships) in Scotland stayed the same in Q4 2021-2022 (January- March 2022) compared with the previous quarter (October-December 2021). Overall, personal insolvency numbers (bankruptcies and protected trust deeds) in Scotland for Q4 2021-2022 were 13% higher compared with Q4 2020-2021, at 1,894 (2021- 2022) against 1,677 (2020-2021). The number of personal insolvencies (bankruptcies and protected trust deeds) in Scotland fell by 8.3% in Q4 2021-2022 (January-March 2022) compared with the previous quarter (October-December 2021). There has been a sharp rise in corporate
insolvencies over the last fi nancial year, with 854 corporate insolvencies in the fi nancial year 2021-2022 compared to 442 corporate insolvencies in the fi nancial year 2020-2021. This has been driven by a 160% increase in the number of Creditors’ Voluntary Liquidations (CVL) (270 in 2020-2021 compared to 701 in 2021-2022). It is interesting to note that in the fi nancial
year 2021-22, compulsory liquidations actually decreased by 11% compared to 2020- 2201 (there were 153 compulsory liquidations in 2021-2022 compared to 172 in 2020-2021). This suggests directors are preferring to use the CVL procedure over the compulsory liquidation procedure, perhaps because of lower costs to enter the process.
32 In the latest quarter, Q4 2021-2022, this
trend of a sharp rise in the number of CVLs is even more pronounced, with an increase of 257% in the number of CVLs compared to Q4 2020-2021 (in Q4 2020-21 there were 56 CVLs and in Q4 2021-22 there were 200). Members’ voluntary liquidations (MVL),
which are solvent liquidations often used to make tax effi cient returns of capital to shareholders, declined by 18% in the fi nancial year 2021-2022 compared to 2020-2021 (879 compared to 717) and this trend was even more pronounced in Q4 2021-2022 compared to Q4 2020-21, which saw a 40% decrease in the number of MVLs. There has been a sharp rise in corporate
insolvencies in the fi nancial year 2021-2022, particularly driven by directors placing companies into insolvency using the CVL procedure. The timing of this increase in corporate insolvencies coincides with many businesses needing to commence repayments on Bounce Back Loans from May 2021, notwithstanding that there are options available for companies struggling to make Bounce Back Loan repayments, including the Pay As You Grow scheme. As we emerge from the COVID-19
pandemic, business owners are taking stock of the fi nancial position of their companies and considering whether debt they have taken on to survive the pandemic is sustainable. I would urge any director concerned about Bounce Back Loan repayments to talk to their lender in the fi rst instance to understand what further support may be available. Businesses are being hit from every angle with creditor pressure increasing, infl ation
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causing a rise in costs of raw materials, fuel and wages, whilst at the same time consumer demand is down because of the increased cost of living.
Q4 2021-2022 also spanned the most recent
period of restrictions due to the Omicron variant. These restrictions included physical distancing and table service in hospitality settings, as well as impacting nightclubs and placing capacity limitations on indoor events. As a result, many businesses missed out on a vital cash injection from trading at their busiest time of year during the festive period. As we head into spring, this has meant some directors may be considering the debt in their business unsustainable and are using corporate insolvency and specifi cally CVLs to restructure their business and alleviate fi nancial distress.
It has also not been an easy period for indi-
viduals. Total personal insolvencies increased by 2% in the fi nancial year 2021-2022 compared to 2020-2021 (7,594 compared
Q4 2021-22 also spanned the most recent period of restrictions due to the Omicron variant. These restrictions included physical distancing and table service in hospitality settings, as well as impacting nightclubs and placing capacity limitations on indoor events
May 2022
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