The statistics released today by the Accountant in Bankruptcy show that personal insolvency levels in Scotland in the first quarter of this financial year fell to their lowest level in 14 years, while corporate insolvencies fell by almost a quarter against the same period last year.
Commenting on the figures, Paul Dounis, Restructuring and Recovery Partner at Baker Tilly in Scotland said:
'The low numbers of people having to enter into formal personal insolvency procedures suggest that many Scots have taken advantage of the historically low interest rates to bring problem debts under control. While this is very welcome, the Governor of the Bank of England’s recent pronouncements suggest that this golden period for borrowers may soon be coming to an end, with rates beginning to rise from as early as next year. While the indications are that any rises will be gradual and limited, they will still have a noticeable impact on monthly mortgage payments and credit card bills and will reduce disposable incomes. We’re also seeing a rise in unsecured lending by the high street banks which could mean that some people may be over-extending themselves and storing up problems for the future.
What’s interesting in these latest figures is that we have seen a slight rise in Protected Trust Deeds (PTDs) since the previous quarter, while Debt Arrangement Schemes (DAS) fell to their lowest quarterly total in four years. This might indicate that despite the recent rise in costs of applying for a PTD, debtors feel that agreeing to a PTD over three to five years offers a more affordable solution than repaying in full under a DAS, which can run for up to 10 years.
The relatively low level of corporate insolvencies also paints a rosy picture of corporate health in Scotland, but there are clouds on the horizon. Many firms in distress have been able to survive for so long thanks entirely to record low rates, so even a half a percentage point rise could push some over the edge.
We’re also seeing emerging evidence that HMRC is taking a much tougher approach towards those businesses with tax arrears, and appear to be less willing to consider Time to Pay arrangements and more demanding in their payment terms. HMRC’s latest annual report also shows that its policy to tackle tax avoidance schemes by demanding upfront payments is now beginning to bite and this could cause problems for some Scottish firms.'