‘20 Scottish firms to go bust every week’ claim
Many companies are only managing to service the interest on their debts rather than paying off the money they owe. This leaves firms in a precarious situation if interest rates begin to rise, as they will be unable to meet their repayments.
Bryan Jackson, a partner at accountancy firm BDO, which made the predictions, said: “Worryingly, many businesses are simply paying interest on debts that are never reduced.
“A rise in interest rates, reduced income, or a change in the marketplace and these businesses will collapse.
“About 20 businesses a week will have gone bust during 2013 and I would expect a similar figure or perhaps even higher for the coming year.”
Just under 15,000 Scots were sequestrated – the Scottish term for bankruptcy – or took out a protected trust deed (PTD) last year and a similar figure will go bust by the end of this year, BDO warned.
Jackson said that “rising utility bills, higher food costs and frozen wages” meant that people struggling with debts were also only able to pay off the interest rather than the amount they borrowed.
Such individuals could be “tipped over the edge” by increases in their living costs or reductions in eg, overtime payments, he added, or by changes in personal circumstances such as divorce or unemployment.
Jackson added: “Although the number of Scots being made bankrupt has reduced in the past few years from a peak of 23,500 in 2009, it has settled at a disturbingly high level.
“Prior to 2008, a figure of 15,000 Scots a year being bankrupted would have seemed outrageous but we have got used to a very high level of personal insolvency since the recession began and seem to accept these numbers as the inevitable consequence of the economic downturn.
“They may use payday loans to cover themselves in the short term but the debts will simply accumulate and eventually they will be made bankrupt.”
BDO’s predictions came as data from “big four” accountancy firm Deloitte showed that 183 British retailers fell into administration last year, a 6 per cent drop compared with 2012.
Lee Manning, a partner at Deloitte, said: “The high street has undergone a re-balancing and this is what is being reflected by these figures. A year ago, we were about to see HMV, Blockbuster and Jessops enter administration, but I would not expect as many high-profile retail casualties this time round.
“This does not mean demand is increasing, more that the clear-out will benefit those still standing in 2014.”
But Deloitte warned that there had been an 11 per cent rise in retail administrations during the final three months of last year to 41.
In total, 1,629 businesses went into administration in 2013, down 11 per cent year-on-year, the accountancy firm said.
Almost all of the sectors tracked in the analysis reported a decline in the number of business failures – including a 24 per cent fall in the property and construction industry, and a 4 per cent decrease among manufacturing firms.
The healthcare and social services sector posted an increase of 7 per cent to 45, the analysis found.