Trends defy benign economy
20 firms and 230 individuals to go bust each week in 2019
About 230 individuals in Scotland and 20 companies will go bust each week this year, despite low interest rates and relatively benign economic conditions.
It is expected that 12,000 individuals will have been sequestrated (the Scottish term for bankruptcy) or taken out a Protected Trust Deed (PTD) by the end of 2018, the highest number since 2013, and that a similar figure will face the same fate this year.
Business failures are also rising dramatically by an estimated 25.8% in 2018 compared with 2017 and the highest annual figure since 2012 as they struggle with the uncertainty of Brexit and slowing consumer confidence.
The level of personal insolvencies is put down to rising utility bills, higher food costs and frozen wages which has meant that many individuals are simply paying interest on their debts.
Eileen Blackburn, head of restructuring and debt advisory at French Duncan, said: “Although employment levels are extremely high, and many individuals will have the lowest mortgage interest of their life it is clear that for thousands of Scots there is an underlying indebtedness which they are unable to address.
“They may have acquired this debt over a period of many years but cannot do anything but pay the monthly interest. Any slight change in their circumstances and they are quickly thrown into a financially precarious position.
“A reduction in overtime payments or slight increases in living costs can tip these individuals over the edge. They may then use very high interest short term loan companies to cover themselves, but this simply exacerbates, rather than resolves, the situation and the debts rapidly accumulate until they are impossible to pay, and the individual will be made bankrupt.”
Ms Blackburn added: “Over 7,000 of the personal insolvencies in 2018 were protected trust deeds whose numbers have grown rapidly over the last few years and by 21.1% in the last year alone.
“These are often described as debt solutions for individuals with assets and jobs, so it is an indication that long term indebtedness occurs across society among people with homes, jobs and assets but are unable to meet punitive interest rates on historic debt.”
She said: “Worryingly business failures are also rising dramatically increasing by an estimated 25.8% in 2018 compared with 2017 and the highest annual figure since 2012.
“I would expect around 20 Scottish businesses a week to fail in 2019 which indicates difficulties in certain sectors of the Scottish market.
“Undoubtedly uncertainty over Brexit, increased competition and downward consumer pressures on prices are all factors in causing business failure but these figures reveal that certain sectors are suffering disproportionately as specific market changes impact upon them.”
Construction, retail and casual dining already accounted for 41.6% of all corporate failures in the first three quarters of this year.
Lending to the construction sector is contracting while retailers and casual dining outlets are experiencing major shifts in consumer attitudes which have impacted seriously on these sectors resulting in many major closures.
Ms Blackburn said: “We have both rising personal and corporate insolvencies at a time when the economy is relatively benign, personal and corporate lending is cheap, and unemployment is low.
“Under these circumstances you would expect insolvencies to be falling. That they are rising quite rapidly in both personal and corporate is a worry for the coming years as more Scottish individuals and firms will go bust.”