Fewer firms going bust, but KPMG warns of challenges ahead

The number of firms failing in Scotland saw a significant drop in the second quarter, according to new data from accountant KPMG.

KPMG's Blair Nimmo warned of storm clouds on the horizon for Scotland's companies. Picture: Contributed

The total number of insolvency appointments fell by 27 per cent from the same period last year to reach 196.

Liquidations, which tend to affect smaller businesses, fell by nearly a third to 170, but administration appointments that generally involve larger firms increased to 26 from 24.

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Many oil and gas firms are now in a 'stronger position' after cutting costs, KPMG said. Picture: Danny Lawson/PA Wire

Blair Nimmo, head of restructuring for KPMG in the UK, said the data mirrors the firm’s “experience on the ground”.

He said the oil and gas sector has come through troubled times, with many businesses emerging stronger after overhauling their operating models and slashing costs.

“Marking an encouraging sign for business in Scotland, there has been a significant fall in corporate insolvencies during the last quarter, and in the last year,” Nimmo said.

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Many oil and gas firms are now in a 'stronger position' after cutting costs, KPMG said. Picture: Danny Lawson/PA Wire

“The statistics reflect our experience on the ground. Oil and gas has come through a very difficult period and in order to survive, many businesses in the sector have drastically changed their operating models and cut costs significantly.

“This has put them in a stronger position and, along with the support of their stakeholders, they continue to navigate through what is still a challenging period.

“As a result, we are seeing few insolvencies in this sector, with most of our work revolving around improving approaches to working capital management. Otherwise, it is difficult to detect any sectoral pattern in Scotland and overall, we sense a very cautious approach from most corporates, given the current political and economic climate.”

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Nimmo also forecast further storm clouds, adding: “The likely impact of Brexit is yet to be seen and the recent election has undoubtedly introduced greater uncertainty, and may have had a negative effect on consumer and corporate confidence.

“Inflation is on the increase and interest rates may be about to rise, while adverse exchange rate movements could also be starting to impact on some sectors, with businesses expressing concern over their ability to pass on additional costs to their customers.”

“The next 12 months and beyond will be challenging for many businesses and it will be interesting to see how Scotland fares relative to the rest of the UK.”

Separate data from insolvency and restructuring trade body R3 found that firms in Scotland have the lowest levels of insolvency risk of anywhere in the UK.

It reported that in July, 21.8 per cent of Scottish companies were at higher-than-normal risk of insolvency, against a UK average of 27.3 per cent.

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