Fear of ‘calm before storm’ despite dip in Scottish bankruptcies

THE number of Scots becoming insolvent has fallen by a quarter, according to new figures offering further hope of economic recovery.

Just over 4,000 applications were made between July and August this year, 27.5 per cent fewer than the same period last year.

At the same time, corporate insolvencies fell to 274, which was 24.1 per cent down on 2011.

The figures also represent a fall compared with the period April to June, and suggest companies and individuals are getting on top of their debts.

However, experts have warned against complacency. They say the rise of pay-day lenders may mean people are racking up unsustainable debts, which will see figures rise again in future.

And while personal insolvencies as a whole are falling, the number of protected trust deeds (PTDs) has remained relatively static, suggesting former higher earners in the middle-classes are continuing to struggle.

PTDs are typically used by people who have earnings and assets, or have a house with equity, to strike a deal with creditors.

Bryan Jackson, corporate recovery partner with PKF, said: “These figures reveal a welcome reduction in the number of Scots being made bankrupt in the third quarter of the year.

“In particular, the number of sequestrations has fallen quite sharply.

“However, the number of protected trust deeds remains stubbornly high, indicating the recession is still affecting the more affluent in society.”

He added: “Given the increase in the number of non-mainstream lenders entering the market, we may well simply have the calm before the storm.”

There are also concerns that many businesses continue to struggle and stand on the brink of insolvency.

Donald McNaught, director of business recovery and insolvency at Johnston Carmichael, said: “On the ground, we are aware of a lot of companies which are on the brink of insolvency but stakeholders, being creditors or otherwise, are holding back for a number of reasons.

“One is that creditors would be reluctant to expose property to the market right now because values are so depressed.

“And the creditors themselves don’t have the money to spend on expensive litigation.”

Meanwhile, the Scottish Government has warned that the numbers may have been skewed by a fee increase in June, which triggered a rush of applications in April and May. Fergus Ewing, the minister for energy, enterprise and tourism, said: “The drop in personal bankruptcies for this quarter is expected – there was a surge of applications last quarter for debtors applying for their own bankruptcy, prior to a necessary fee increase in June.

“We will continue to monitor these figures closely over the forthcoming period.”

He added: “Plans for a ‘Financial health service’ for the people of Scotland will focus on providing rehabilitation to individuals and organisations with advice and financial education as a key focus.

“The decrease in the number of Scottish company insolvencies is encouraging. However, we must not be complacent.”