Nation in better financial health
Bankruptcies fall to pre-recession levels
The figures were hailed by the Scottish government as a sign of an improving economy though there is evidence that creditors are showing more willingness to engage with debtors.
One insolvency expert also warned against complacency among those taking out unsecured borrowings that could come back to haunt them if interest rates start to rise.
Official statistics released by Accountant in Bankruptcy (AiB) reveal personal bankruptcies in Scotland have fallen to levels not seen since before the global economic downturn in 2007-2008.
The Scottish insolvency statistics for the third quarter to the end December show personal insolvencies, which include both bankruptcies and protected trust deeds (PTDs), at 2,633.
This is a 12% fall over the previous quarter and 21.3% lower than the same quarter a year ago, continuing a long term decline since 2008-2009.
Debt payment programmes under the Debt Arrangement Scheme (DAS) also showed a slight decrease of 5.1% to 1,097 from the previous quarter.
A total of £9.3 million was repaid to creditors throughout the quarter, £1.6m more than the same quarter in the previous year.
Taken as a whole, the combined number of bankruptcies, PTDs and DAS applications approved totalled 3,730 this quarter – 17.6% lower than the corresponding quarter a year ago, demonstrating demand for statutory debt solutions in Scotland continues to decline.
Scottish businesses also suffered fewer liquidations or receiverships, with numbers dropping for the second successive quarter, down by 7.7% and 15.7% lower than the same quarter for 2013-14.
Business Minister Fergus Ewing welcomed the latest figures. He said: “It is extremely encouraging to see personal insolvencies continue to fall year-on-year.
“Fewer companies going to the wall is also welcome news, as this means more businesses are contributing to the Scottish economy and more jobs are being retained.
“£9.3 million repaid through DAS shows that although DAS applications show a slight reduction from the previous quarter, debtors are continuing to maintain payment programmes and repay their debts.
“There can be no doubt insolvencies falling back to pre-recession levels reflects the improving economic picture in Scotland – but there is no room for complacency.
“The Scottish Government has recently introduced Scotland’s Financial Health Service, aimed at helping those people with money worries lighten their financial load by signposting them to advice and support from trusted organisations
“I believe this pioneering initiative will play a major role in shaping the future of debt advice in Scotland, ensuring the right information is always available at the right time.
“The introduction of the Bankruptcy and Debt Advice (Scotland) Act 2014 in April will also offer protection to those who need it most.
“This legislation will see compulsory money advice, financial education and a new route into bankruptcy for people with few assets, demonstrating this Government is committed to supporting the most financially vulnerable people in Scotland.”
Insolvency partner reacts to figures
Commenting on the figures, Keith Anderson, insolvency partner at Baker Tilly in Scotland said: “The fact that personal insolvencies are at a 10 year low in Scotland is due in part to the record low interest rates that we are continuing to enjoy, but we are also seeing that creditors are increasingly engaging with debtors to accept informal payment plans over formal insolvency processes.
“However, there is a danger that Scottish consumers could become complacent as figures released by the British Banker’s Association yesterday show that the annual growth rate in unsecured lending has reached a six year high. People need to be wary of over-extending themselves, or this could come back to haunt them when interest rates do eventually start to rise.
“The latest statistics also show a welcome decline in insolvencies among Scottish registered businesses. Clearly, businesses too are benefitting from current low rates, but we believe that banks and creditors are also continuing to show a degree of forbearance towards struggling businesses. Whether this continues as the recovery takes root remains to be seen.
“As businesses start to recover they also face the risk of overtrading and running into working capital issues, which for some can be fatal.”