Scotland records biggest post-Covid rise in business insolvencies out of all UK nations

An analysis of business insolvencies has found Scotland recorded the biggest rise out of all UK nations last year, with an increase in almost nine in ten UK local authorities compared to the year before the pandemic.

A report published today has found 187 out of 221 upper tier authorities in the UK saw a rise in liquidations comparing 2019 to 2022 – equivalent to an 85 per cent share. The withdrawal of UK Government support and soaring energy costs have been blamed for the rise, with retail and construction the hardest hit, the report states.

There were 608 liquidations last year in Scotland, up from 243 in 2019 – a jump of 150 per cent. The figures for 2020 and 2021 were 207 and 440 respectively.

The figures were published in a report from the BBC’s Shared Data Unit (SDU). The findings were produced by running a fine-tooth comb over more than 50,000 insolvency notices in The Gazette, the official paper of record for public notices, to get an idea of how the pandemic and the cost-of-living crisis affected businesses in each area over the four-year period.

The SDU found that in Scotland, there were 608 liquidations last year, up from 243 in 2019 (file image). Picture: Isabel Infantes/AFP via Getty Images.

Additionally, the data-focused initiative explains it has not used official Insolvency Service statistics as they do not contain a local authority or regional breakdown, and it looked at creditors’ voluntary liquidations, the most common type of liquidation notice. The report also notes that liquidations began to rise following the end of the furlough scheme in September 2021, coming after a temporary pause of the “strike off” process in 2020 due to the pandemic.

Looking at specific local authorities in Scotland, the highest total number of companies to fold was notched by Glasgow City Council at 134 – an 131 per cent jump from 2019 – followed by the City of Edinburgh at 78, and North and South Lanarkshire, which both had 32.

At the other end of the scale, no insolvencies were registered for Shetland or Comhairle nan Eilean Siar (formerly the Western Isles Council) last year. The Borders only had two, down from three in 2019, while Moray, Clackmannanshire, and Dumfries & Galloway all racked up five each.

Increases

Shona Campbell and Donald Scott of Henderson Loggie. Picture: David Ho/www.headshotsscotland.com.

However, in terms of percentage increases between 2019 and 2022, the highest jump was recorded by South Ayrshire, up 550 per cent to 27 insolvencies, followed by North Ayrshire with a 500 per cent jump to 29.

The SDU also found that looking at Scotland on a sector-by-sector basis, only half of the business categories showed a rise in insolvencies, with the other half showing a fall. The largest total rise came in the “professional, scientific and technical activities” category, which went from 79 insolvencies in 2019 to 120 last year.

Tallying with this, among firms to have had their liquidations announced last year was Edinburgh-based video tech firm Ajenta, known for its immersive virtual classroom platform Vscene, attributed to Covid restrictions having stifled its ability to supply hardware to customers – and amid a broader trend of tech firm layoffs.

Shona Campbell, from Scottish accounting firm Henderson Loggie, was appointed as Ajenta’s liquidator, and she has now welcomed her own firm, which has offices in Edinburgh, Dundee, Glasgow and Aberdeen, appointing Donald Scott as director of its “growing” insolvency division.

The new hire, whose previous roles include senior restructuring manager with a “Big Four” accounting firm, said: “Insolvency skills and experience are particularly relevant at a time when businesses and individuals are struggling against the current economic headwinds.”

In terms of how things have fared since the end of 2022, insolvency and restructuring trade body R3 last month said its analysis of data provided by Creditsafe showed in Scotland in April this year, there were 122 cases of insolvency-related activity, the highest monthly rise in the UK, and the largest total since December 2022, when the figure was 142.

Forecast

And as for the outlook for the pace of companies folding across the UK, Julie Palmer of Begbies Traynor, which says it handles the largest number of corporate insolvency and restructuring appointments in the UK, claimed in the SDU report that figures would continue to rise.

She said some businesses had emerged from the pandemic doing well, but for many others trading was a struggle, particularly in consumer-facing sectors. “There's a lot of nervousness in the economy at the moment due to macro-economic pressures,” she said. “We are seeing rising levels of distress beginning to translate in terms of a pick-up in insolvency rates. We haven't seen that massive falling off the cliff-edge yet, but I think some factors will speed up that process a little bit.

“The courts are progressively beginning to push through some of the credit applications to take recovery action and HMRC is definitely getting a lot more aggressive in terms of chasing statutory debts. So we only see insolvency figures going one way.” Ms Palmer said she believed it would be a steady rise rather than sudden plummeting.

And she claimed a rise in insolvencies can sometimes be a positive factor. “I realise that does sound counterintuitive,” she said. “But the reason for that is, since the financial crisis in 2008 we've been carrying a lot of what have been termed ‘zombie businesses’ – those just hanging on for grim life, but not really achieving much.”

Many staff laid off “will get their jobs recirculated in better financed businesses that are better run and can make better use of the working capital", the Begbies Traynor expert says. “It's a little bit Darwinian, in the sense it's a natural process by which the weaker fall away, and the stronger occupy that space,” she said.