Business failure rate in Scotland falls 27%, new figures reveal

The business failure rate in Scotland rate fell “significantly” in the three months to June, new figures for KPMG show.

The professional services firm said total corporate insolvency appointments fell 27 per cent to 196 in the second quarter to 30 June, down from 270 recorded in Q2 of 2016.

Separate research from R3, the trade association for insolvency and restructuring professionals, suggests Scotland now has the lowest levels of insolvency risk of anywhere in the UK.

KPMG’s figures show 170 liquidation appointments were made in Scotland in the second quarter, down from 246 in Q2 of last year, though administration and receivership appointments rose by two on last year to 26 in total.

Comparing the 12 months to 30 June on the previous 12 months, corporate insolvency appointments dropped to 867 – down 7.2 per cent – from the 935 reported the previous 12 months.

On an annual basis, liquidation appointments totalled 772, down from 834 the previous year and administration and receivership appointments totalled 95, down from 101 the prior year.

KPMG’s UK head of restructuring, Blair Nimmo, said: “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.

“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.”

R3’s insolvency risk tracker monitors activity using Bureau Van Dijk’s ‘Fame’ database of UK companies.

The R3 survey, which assesses companies with high risk credit scores, found in July 21.8 per cent of Scottish companies were at higher than normal risk of insolvency compared with the UK average of 27.3 per cent.

However R3 said the July score was still 1.6 percentage points higher than was reported in April, when 20.2 per cent of Scottish firms were found to be at higher than average risk of insolvency.

Research across sectors found Scottish retailers have the second-lowest level of insolvency risk of all parts of the UK, at 22.9 per cent compared with the UK average of 24.6 per cent – one percentage point higher than the April figure of 21.9 per cent.

R3 said pubs and clubs in Scotland had the lowest risk of insolvency of anywhere in the UK at 18.2 per cent against a UK average of 21.8 per cent.

However Scottish hotels were at a higher risk than the UK average at 21.6 per cent against a UK-wide average of 20 per cent.

R3 said 36.9 per cent of Scotland’s oil and gas extraction companies are at higher than usual risk of insolvency, a slight fall on the June figure of 37.3 per cent but up on April when it stood at 36 per cent.

Tim Cooper, chair of R3 in Scotland and a partner at Addleshaw Goddard in Edinburgh, said: “The Scottish economy enjoyed a bounce in the first quarter of this year, with GDP up by 0.8 per cent according to data from the Scottish government released in early July.

“The results from R3’s insolvency risk tracker appear to support the idea that this positive growth has continued into Q2, as we have the lowest overall increased level of insolvency risk of anywhere in the UK, which is great news.

“The retail sector is an important employer in Scotland, meaning that its relative stability is a relief.

“As for the good news about Scotland’s pubs, all I can say to that is cheers! Whisky is – after all – the UK’s largest food/drink export, and it seems many people still like to enjoy a dram in one of Scotland’s fine hostelries.

“The news from the hotel sector sounds a small warning bell, however, as tourism is a key plank in the Scottish economy.

“The slight worsening in the oil and gas extraction sector could be linked to this as well, as demand for hotel beds near refineries is largely driven by workers from this sector.

“Overall, July’s results show cause for some cheer, along with a strong dash of caution.”

Nimmo also warned “clouds remain on the horizon”.

“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,” he said.

“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.

“This sentiment is reflected in our most recent CEO survey which revealed the majority of UK business leaders are subdued about growth prospects over the next three years.

“Half of those surveyed believed their businesses would grow by less than two per cent each year and three quarters warned increases in inflation meant they would have to pass on increased 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 fairs relative to the rest of the UK.”

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