After the Insolvency Service published their last set of monthly corporate insolvency figures for 2023, we were able to look at what happened in 2023 as a whole and in every year since 2019 for the whole of the UK.
But what happened in Scotland which has its own established insolvency framework and financial rules?
All Scottish business insolvencies
| Year | Insolvencies | Percentage change (on previous year) |
| 2019 | 1,029 | — |
| 2020 | 643 | -38% |
| 2021 | 752 | 17% |
| 2022 | 1,062 | 41% |
| 2023 | 1,234 | 16% |
After an unprecedented year of the pandemic and lockdowns in 2020, it was natural to expect a reduction in Scottish business insolvencies which was borne out with a 38% reduction in all cases.
This recovered slightly in 2021 with an increase of 17% and subsequent increases since to 2023’s total of 1,234 insolvencies – which is a 20% increase on pre-pandemic 2019.
There are several reasons why they have climbed to this level but a combination of increasing interest rates, inflation remaining higher than the official target of 2% along with various factors affecting individual sectors such as hospitality where acute skills and labour shortages have had a big effect.
We can look in more detail at what has happened with each individual insolvency process in the country.
Compulsory Liquidation
| Year | Compulsory liquidations | Percentage change (on previous year) |
| 2019 | 632 | — |
| 2020 | 258 | -40% |
| 2021 | 143 | -55% |
| 2022 | 238 | 66% |
| 2023 | 439 | 84% |
Compulsory liquidations are when a business is forced to close down by a court, usually via a statutory demand or winding up petition for outstanding unpaid debts of as little as £750.
They were suspended between 2020 and 2021 as part of the government’s business support measures but removed entirely in 2022 which saw a huge increase in cases.
The fact they have continued to grow by almost half in 2023 shows that creditors, led by HMRC are being more aggressive in their efforts to recover debts including forcing companies into liquidation to recover whatever value they can.
Creditors Voluntary Liquidations (CVLs)
| Year | CVL | Percentage change (on previous year) |
| 2019 | 313 | — |
| 2020 | 282 | -9% |
| 2021 | 565 | 200% |
| 2022 | 772 | 36% |
| 2023 | 739 | -4% |
Creditors Voluntary Liquidations (CVLs) are the most frequently used insolvency process in the UK with over 75,000 company directors deciding to close their businesses and retain an element of control in the process over the past five years.
In Scotland, this saw a 9% reduction in 2020, the most Covid-19 affected year but this grew by 200% the following year and for the past two years has seen totals over 700 – which is twice as many seen in pre-pandemic 2019.
Scotland has traditionally seen more compulsory liquidations than CVLs but this flipped during the Covid era and has continued since. In 2023 alone CVLs will have been one and a half times higher compulsory liquidations so it will be interesting to monitor whether there is a return to tradition in 2024 or if CVLs will retain their title.
Administration
| Year | Administration | Percentage change (on previous year) |
| 2019 | 81 | — |
| 2020 | 75 | -8% |
| 2021 | 41 | -46% |
| 2022 | 49 | 20% |
| 2023 | 53 | 8% |
Administration is a formal insolvency process that unlike liquidation, doesn’t seek to close the company down.
An external administrator takes over the running of the company from existing management temporarily to see if the company can be rescued and restructured. Alternatively, they could arrange the sale of the business as a whole to new owners with a minimum of disruption to allow it to continue to operate.
Administrations reduced in the first two years of the pandemic before recovering slightly in 2022 and 2023 with continued rises. They have yet to recover to their pre-pandemic levels yet and would need to see an increase in their frequency this year to finally recover their pre-pandemic level.
Company Voluntary Arrangements (CVA)
| Year | CVA | Percentage change (on previous year) |
| 2019 | 1 | — |
| 2020 | 6 | 500% |
| 2021 | 3 | -50% |
| 2022 | 3 | — |
| 2023 | 2 | -33% |
A Company Voluntary Arrangement (CVA) is a formal agreement between a company and its creditors to repay a proportion of total outstanding debt in regular monthly instalments usually in return for a further proportion of it being written off.
Once the remaining debt has been repaid, the business emerges from the CVA debt free and ready to continue trading.
CVA’s are relatively low in Scotland so changes to figures bring large percentage changes. In comparison there were 171 CVAs in England and Wales in 2023.
They rose from one to six in 2020 as some Scottish businesses looked for the protection a CVA offers but these have tailed off to the extent that only two companies chose this method last year.
There were also four receivership appointments from 2019 to 2023 inclusive.
Chris Horner, Insolvency Director with BusinessRescueExpert, said: “There’s always a lag between worsening economic conditions and rising insolvencies as directors do everything in their power to keep their businesses afloat.
“With growth forecast to be sluggish in the first half of 2024, assuming we aren’t in a technical recession too, this will further impact Scottish companies finances even if their outlook improves for the second half of the year. It still might not be enough for some firms.
“It might be the case that the business is too insolvent to be saved and it might ultimately be liquidated after being in a CVA or administration, but these processes are all designed to be used by directors when they are most appropriate and relevant for their situation.
“No matter what situation they find their company in, there will be a procedure that will be appropriate for them to help them.”
You can be forgiven for not being able to remember what happened 12 months ago but 2023 started quite sedately with a dip in the monthly number of insolvencies, as there tends to be historically.
We then saw the busiest year for corporate insolvencies out of the previous 15 so these first few weeks can’t be the most accurate indicator of what the next 11 months will hold.
Better to act on a strategy proven to provide the most realistic options for a director or business owner to improve their situation whether they are in Gretna, John O’Groats or anywhere in between.
Once they get a clearer idea of the unique circumstances the company faces, they will be able to talk through the choices available to directors depending on their ultimate goals for the business – whether they would like to restructure and re emerge stronger than before or if they have decided that it’s time to close the book on one adventure and finish things efficiently before beginning the next one.
No matter what their ultimate aim, they will have a clear roadmap to reach it but only if they take the first step and contact us first.