Why Corporate Insolvencies Are On The Rise in 2025

As we move through 2025, Scotland is experiencing a marked increase in corporate insolvencies. In February 2025, 103 company insolvencies were registered in Scotland, 10% higher than in February 2024. This trend reflects broader UK economic pressures as many Scottish SMEs have been grappling with the Cost of Living Crisis, inflation, high interest rates, and soaring operational costs making the impact even more acute. Particularly in sectors such as hospitality, retail, and construction, businesses are struggling to cope with a combination of escalating energy bills, wage increases tied to National Minimum Wage adjustments, and reduced consumer spending.

What has brought on this increase?

Many Scottish companies are now feeling the pressure of deferred tax payments, bounce-back loans, and other pandemic-era borrowing. With those repayment deadlines now active and cash flow under strain, the number of businesses entering insolvency is climbing month by month.

Winding-up petitions, which had been largely suspended during the pandemic, are now back in full swing. With the end of the pandemic and a return to normal tax procedures, HMRC is once again actively pursuing unpaid taxes, including VAT and PAYE liabilities. Many businesses are now facing legal action for non-payment, adding another layer of pressure to already overstretched operations. The reinstatement of winding-up petitions has also made it easier for creditors to take action against struggling companies. This has contributed to the increase in insolvencies, as businesses that were previously protected from creditor action are now exposed to the risk of liquidation.

Geopolitical tensions, including the ongoing conflict in Ukraine and broader instability in global markets, have also contributed to the rise in corporate insolvencies. Energy prices, especially in Europe, have remained high, which has added pressure to businesses already struggling with inflation.

What can you do to avoid your business becoming insolvent?

One of the most common ways to avoid insolvency is restructuring your company’s operations and finances. This can include reducing overhead costs, renegotiating contracts, and streamlining operations. The corporate team at Gilson Gray can help you explore options for restructuring debt, renegotiating terms with creditors, and re-evaluating your current business model.

You may also wish to enter into a Company Voluntary Arrangement (CVA). A CVA is a legally binding agreement between a company and its creditors, where a company can come to an agreement with its creditors to repay a portion of its debts over a fixed period, usually three to five years. A CVA allows the company to continue operating while gradually repaying its debts, as long as it meets the terms of the agreement. This can be an effective tool for avoiding liquidation, especially for businesses with a viable future but unsustainable debt levels.

Seeking early legal advice can be crucial to a company’s success, and directors must be proactive in addressing financial difficulties before they escalate. By identifying warning signs early and seeking advice, companies can take action to protect both their future and their directors’ personal interests. The corporate team at Gilson Gray can provide guidance to steer your business from becoming insolvent.

To discuss any of the points raised further, please contact a member of our Insolvency law team here.

The information and opinions contained in this blog are for information only.  They are not intended to constitute advice and should not be relied upon or considered as a replacement for advice.  Before acting on any information contained in this blog, please seek solicitor’s advice from Gilson Gray.