Rise in firms going under raises economy concerns

Concerns over the strength of the Scottish economy have been raised after the number of businesses failing rose to their highest level in almost two years.

Paul Dounis of RSM said many firms are struggling with late payments

Official figures from the Accountant in Bankruptcy (AiB) showed the number of Scottish business failures rose from 180 in the previous quarter to 254 in October to December.

David Menzies, director of insolvency for accountancy body Icas said the rise in corporate failures to the highest level in almost two years indicated that “economic growth in Scotland is muted”.

Although for the whole of 2015 the number of failures fell by 7.6 per cent from 896 to 828, commentators warned that the fall-out from the impact of the low oil price was set to take its toll on businesses in 2016.

Tim Cooper, chairman of insolvency trade body R3 in Scotland, said: “There has been a substantial increase in the number of corporate insolvencies this quarter, which goes against the downward trend we’ve seen in recent years.

“Over the course of this year, we are likely to experience further stress in the oil and gas sectors, and that having a wider impact across Scotland.

“Many sectors may already be feeling the effects, including the supply, leisure and hospitality industries.”

He also warned that numbers could rise further when an interest rate rise comes and thousands of “zombie” businesses are no longer able to keep their heads above water when it comes to meeting their repayments.

Paul Dounis, restructuring advisory partner at RSM in Scotland said cash flow was a significant issue for many struggling firms.

“Many business continue to struggle with late payments, impacting on cash flow at a time when HMRC are seeking to recover unpaid tax bills and cracking down on tax avoidance schemes.”

Keith Anderson, a director with Glasgow-based restructuring and insolvency firm MLM Solutions, said the overall fall in failures in 2015 reflected a “relatively benign lending environment and the growth that is coming through the economy”.

Although he said continued low interest rates had contributed to a mood of optimism among business owners, he warned that rates “must rise at some point”.

The AiB figures came after data from KPMG earlier this week also showed the number of failing businesses reduced in Scotland last year but that the latest quarter had seen a rise. The number of corporate insolvencies in 2015 stood at 902, a 4 per cent decrease on 2014, when there were 943 insolvencies.

However, the final three months of 2015 saw a 30 per cent increase in insolvency appointments compared to the same period in 2014 – 210 up to 275.

Administrations, which typically affect larger organisations, increased by 52 per cent – from 67 in 2014 to 102 last year.