Next quarter warning as construction sector accounts for high number of Scottish insolvencies

UK government statistics have revealed that there were 232 corporate insolvencies in the quarter to September 30, an increase of 1.3% compared to the same quarter in 2017.

Of these, 212 were company liquidations, which was a 1.9% increase on the same quarter of 2017.

The 116 compulsory liquidations during the third quarter of 2018 was a 23.7% decrease since Q3 2017.

There were 17 administrations in Q3 2018, three company voluntary arrangements and no receivership appointments during this period.

Derek Forsyth, head of business recovery and insolvency at Campbell Dallas, highlighted that more than half of the companies going through an insolvency process in the quarter were in either the construction, retail or hotel and leisure sectors. 

He said: “This trend is alarming, particularly as we go into a traditionally difficult quarter for the construction and rural hotel sectors, and whilst retail sales will generally be up, the traditional high street stores continue to be affected by high costs and online sales. The impact of the budget increase in the National Living Wage will affect margin, making trading conditions even more difficult.”

He added: “The construction sector in Scotland has seen a number of high profile casualties in the last few months, with a large number of creditors losing out, and employees losing their jobs. There has been much commentary recently about the potential adverse impact of Brexit on EU citizens working in the hotel and leisure sector, and on the retail side, whilst such as House of Fraser will always attract headlines, there are many medium and smaller outlets similarly being affected. The proposed reintroduction of government preferential claims from 2020 in the Budget will adversely affect the returns to the ordinary creditors.”

Derek Forsyth urged companies to plan ahead for the next quarter, which is traditionally challenging, with cash flow problems being a frequent cause of failure.

He said: “It is vital that directors and stakeholders take all steps to plan ahead and ensure that their businesses are robust and financially viable, and do not become part of the next quarter’s statistics.”

In England and Wales the construction industry suffered more company insolvencies than any other sector during the last year.

Excluding bulk insolvencies, in the twelve months ending Q3 2018, the construction industry accounted for 2,924 insolvencies – up 3.8 % from the 12 months ending Q2 2018.