The trend of increase in the number of personal insolvencies (bankruptcies, protected trust deeds and DAS etc.) continues its upwards trend.
This may seem a little strange when unemployment is at a 25 year low. However, the phenomenon of “zombie companies” appears to prevail in the personal regime. Some 43% of Scottish adults struggle to manage financially from one pay day to the next. The availability of consumer credit at the moment is high, but the small change in the interest rate could have a massive impact on the numbers of appointments going forward.
In my own experience, this is also timed to correlate with personal guarantees being called upon in the aftermath of corporate insolvency appointment increases from a few years back. Where the company has had insufficient assets to pay its creditors, and personal guarantees have been signed by the directors, those personal guarantees have been brought to the fore with the shortfall being sought from the company directors personally. In my opinion, there is a potential tip of the iceberg moment to come in the event of interest rates rising in the short to medium term future.
The number of corporate insolvency appointments has been relatively flat over the last couple of years but is slightly down on the number of appointments from this time last year.
The statistics of corporate insolvencies are often quite difficult to read into. This is because voluntary liquidations can take place where a company is not technically “insolvent”. It is a tax efficient means for extrapolating capital value when used properly. However, trade indicators suggest that 1 in 5 Scottish companies are at increased risk of insolvency. This is slightly better than the 1 in 4 figure for the UK as an average but is a significant risk going forward. By going forward, particularly for those who interact with companies in a supply sense.
As with personal insolvencies above, in my opinion, it seems obvious that a small increase in interest rates could well give rise to a significant increase in the number of distressed appointments to companies.
In both personal and corporate insolvency situations, getting good advice early is crucial. The outcomes can be vastly different and can afford proper turnaround as opposed to pure insolvency if appropriate advice is sought early enough. My recommendation as always for anybody who is worried about their position is to speak to a qualified insolvency specialist.
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