22/07/2009 11:59

EMBARGOED UNTIL 00:01 THURSDAY 23 JULY 2009

The number of corporate insolvencies in Scotland has risen by 32% year on year according to analysis by PricewaterhouseCoopers LLP. A total of 1248 businesses in Scotland entered into corporate insolvency between July 2008 and June 2009 compared to 944 the previous year (July 2007 – June 2008).

Current data may indicate that the UK recession may have bottomed out in March 2009 with some signs of positive growth recorded in April and May and there is some suggestion that the insolvency numbers have also reached a plateau. Only 318 corporate insolvencies were registered between April to June 2009 compared to the 342 during the previous quarter – a decrease of 7%. This follows a 1.5% drop from the last three months of 2008 to the first quarter of 2009. However, we would caution that there is normally a time lag between actual corporate failures and the barometer of economic indicators.

The industries hardest hit over the last six months have been research and development, automotive and computing. Meanwhile, sectors such as hotel and leisure, transport, construction and the rental market have recorded a drop in the number of corporate insolvencies. This backs industry reports that these sectors are beginning to see a pick up in activity in the marketplace.

Bruce Cartwright, head of Business Recovery Services at PricewaterhouseCoopers in Scotland said:

“It is important to rebuild confidence and focus on growing those businesses that have a clear agenda and direction and who have the ability to come out of this recession in a stronger place. However, it is simply too early to say that we are out of the woods, as our long-term recovery is more likely to be slower than the UK.

“With corporate revenues continuing to fall and the cash flow impact increasing due to issues such as reducing levels of credit insurance in the market, restructuring requires very radical action on costs and cash to re-base businesses to the levels of revenue achievable in current market conditions. It is important to note, however, that we are seeing some positive signs, particularly in the ability of businesses to access credit. For some businesses this has meant entering new terrain, with funding arrangements often involving several individual lenders rather than one main bank.

“Real estate development and construction, where revenues have been particularly hard hit has unsurprisingly been a focus of formal appointments, however, there are cautiously optimistic signs that this is beginning to stablilise. Over recent weeks we have seen a number of major housebuilders such as Barrett and Persimmon confirm stronger sales and price levels over the last six months. We are, however, seeing an increasing number of residential and commercial investment property casualties.

“The impact of inflexible high rents and the fall in consumer spending on retail is reflected in the continuing high number of casualties in this sector. A new approach is clearly required to keep the high street breathing and often the insolvency strategy enables retailers to focus on reducing the size of the retail estate back to a core of profitable outlets.

“Service sector businesses are particularly badly hit by insolvency and find it difficult to survive independently after an appointment. Once real revenues fall for a sustained period, seeking early advice about restructuring both your balance sheet and your cost base is critical in the current environment. Often the only viable route to survival will be to find a trade buyer or equity investor, both of whom will want to know how the business either can or has right sized its cost base.”

The Scottish figures reflect a similar year-on-year position to other UK regions such as Yorkshire & Lincolnshire (63.4%), London (55.1%) and the South of England (54.8%). With the trend in Scotland apparently easing from quarter one to quarter two, other areas are also reporting a slow down in the number of corporate insolvencies recorded including the West region (-0,6%), the West Midlands (-5.5%) and the East Midlands (-14.6%). The greatest deceleration from the previous quarter appears to have taken place in Wales (-25.8%) and South West England (- 20.3%).

Bruce Cartwright, head of business recovery services at PricewaterhouseCoopers LLP, continued:

“Despite grabbing the headlines on an almost daily basis over the last quarter, insolvency is not necessarily viewed as the end of a business and businesses are seeing that insolvency techniques can be used as a constructive mechanism to salvage and revitalise ailing operations. Used in the right circumstances and with transparency, insolvency procedures including pre-packaged administrations can help to rescue a company, saving jobs, and preserving value for the company and continuity for suppliers.

“Where rescue capital is a scarce commodity, it is obvious that the sooner problems are recognised, a solution, inside or outside an insolvency process, is more likely to be achievable.”

ENDS

About PricewaterhouseCoopers

PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for our clients and their stakeholders. More than 163,000 people in 151 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice.

"PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom) or, as the context requires, the PricewaterhouseCoopers global network or other member firms in the network, each of which is a separate and independent legal entity.