Grim times ahead as 25 Scots firms go under every week

Nearly 25 firms went to the wall each week during 2012, with last year’s total of 1,264 only just shy of 2011’s 1,278, according to data from the Office of the Accountant in Bankruptcy (AiB).

A wave of administrations in recent weeks – which have included the headline-grabbing failures of UK high street stalwarts such as Blockbuster, HMV and Jessops – could trigger a wave of corporate insolvencies later in the year.

A total of 185 firms fell into liquidation or receivership in the final three months of 2012, down by a third year-on-year and also quarter-on-quarter.

Accountants at PKF suggested a large proportion of the decline may be down to the fact that the taxman has eased off pursuing firms that owe it money.

PKF corporate recovery partner Bryan Jackson said HM Revenue & Customs – the “major player” in initiating insolvency proceedings – appeared to have dramatically reduced its activity from November onwards.

The result was a plunge to just 94 compulsory liquidations in the final three months of 2012, less than half the total recorded in the previous quarter.

Experts have warned it is a situation that cannot continue indefinitely. Graeme Henry, partner and head of corporate restructuring at law firm HBJ Gateley, said the figures didn’t necessarily reflect the true picture of what remains a “pretty grim” economy.

“It’s more likely to be that falling insolvencies are a reflection of banks and other creditors doing their best to support businesses in the hope they can survive the downturn,” Henry said. “The continued support for companies that cannot grow and merely pay their interest – so-called zombie companies – is understandable but may not help the economy to grow and could act as a drag on successful businesses.”

PKF’s Jackson agreed that many Scots businesses were toiling to stay afloat.

“The headlines throughout January have highlighted the plight of the retail sector as it struggles to come to terms with a changing trading environment coupled with a lack of consumer demand,” he said. “But there have also been issues with the hospitality sector and construction which have resulted in many hundreds of businesses going under over the last year.”

Accountancy firm KPMG, which keeps its own statistics on Scottish corporate casualties, announced earlier this month that it had also tracked a decline in insolvencies in the final quarter of last year. However, the firm warned “the many challenges posed by the current global economic climate” remained.

The AiB also tracks personal insolvenices – called “sequestrations” – which fell in the fourth quarter and for 2012 as a whole.

However, there was an a year-on-year increase in the number of Scots filing for protected trust deeds, the method of bankruptcy normally used by those with jobs, homes and other assets.

Jackson said the outlook remained worrying for consumers and businesses.

“Unfortunately the situation is unlikely to get much better in the coming year as the threat of a triple-dip recession looms large and there seems little easing in trading conditions for business,” he said.