The number of Scottish firms failing in the first quarter of 2019 rose 33.9% compared to the last quarter of 2018 according to analysis of the latest figures by accountants and business advisers French Duncan LLP. The latest Accountant in Bankruptcy (AiB) figures (AiB uses financial year so their current statistics show the period from January to March as the fourth quarter whereas we are using the calendar year) show that 280 Scottish firms failed in the first quarter of this year compared with 209 in the fourth quarter of 2018. This is the highest quarterly figure since Q2 2012.
Eileen Blackburn is Head of Restructuring and Debt Advisory at accountants French Duncan LLP, explained: “The increase in the number of corporate insolvencies in the first quarter of 2019 is expected, if unwelcome, news. The trend for corporate failures has been rising steadily for six years and shows little signs of slowing.”
“Last year was the highest annual figure for corporate insolvencies since 2012 and clearly some sectors are suffering despite the relatively benign lending environment.
“That this is happening when interest rates are at historically low levels, when unemployment is at a record low of 3.4% which is around 94,000 people, and the economy is growing indicates something more fundamental is happening. Problems with the viability of the High Street, continued uncertainty over Brexit and the consequent reduced investment, and shifting consumer buying have all had a major impact on sectors such as retail and casual dining. Construction is also being adversely affected although the causes there are related to restructuring of larger players and the well-publicised impact of difficulties at Interserve and Carillion.”
Eileen continued: “The problem is that with interest rates only going one way, with continuing confusion over the UK’s future relationship with Europe, and with the political situation in turmoil it seems likely that many businesses will face even more difficulties in the coming year. Those with close economic ties to the EU or who rely heavily on European staff in areas such as hospitality, retail, and agriculture will all have serious financial issues to address in the coming year.”
“To avoid becoming a future insolvency statistic business owners must monitor costs, reduce debts, and maintain cash flow. In this way many firms can protect themselves from the impact of any future economic turbulence. For certain sectors, such as construction, retail and casual dining, there are other factors which are causing financial issues apart from Brexit which need to be addressed.”
Eileen concluded: “There are always periods when corporate failures rise and fall but this appears to be unusual. The last peak was in the years immediately after the financial crash when such outcomes were to be expected. But this time it is happening when the economic position is more positive. This perhaps highlights some more basic underlying serious problems with the economy and the way businesses operate. It could just be a financial blip although six years is a long time to have successive increases in corporate failure. The next few months will be difficult but, in the meantime, I think that many more Scottish firms will go under until greater stability can be established in the economy.”
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