Scottish insolvency stats could mask pressure on North Sea

Following the announcement that corporate insolvencies in Scotland fell by almost 10 per cent in the final quarter of last year, Addi Shamash, corporate restructuring partner in HBJ Gateley’s Aberdeen office, said while parts of the Scottish economy were enjoying strong growth, several sectors were finding the going particularly tough – and no more so than in the North Sea.

She said: “You need to see these figures in the wider context of what’s happening in big sectors like oil and gas. While it’s always encouraging to note a fall in business failures, the economy in Aberdeen is being hamstrung by global forces outwith its control and that may have an impact in the near future.

“Companies in the North Sea have been surviving on cash reserves and cutting costs where they can, but that’s not a long-term fix. Once cash starts to run out we may see the true impact of the low oil price, and that could be very hard for Aberdeen as well as suppliers which rely on the city’s well-documented resilience.

“That ability to endure could be thoroughly tested later this year, so we have to ensure the rest of the economy is well-supported and in a position to prevent the country’s numbers from sliding back too far.”

The Accountant In Bankruptcy statistics also showed an 88 per cent increase in Members’ Voluntary Liquidations, where a company is voluntarily closed down by its directors and assets distributed.

In Q4 2015, 358 companies were subject to MVLs, up from 190 in Q3. The increase was due to a change in taxation rules on April 5 2016, according to Ms Shamash, where the government restricted entrepreneurial tax relief on dividends and income on distributions following an MVL.

She added: “There was a rush to complete MVLs where shareholders wanted to get ahead of the changes to tax rules, otherwise they would have been liable for the top rate of tax. Removing Entrepreneurs’ Relief from the proceeds of an MVL led to this huge spike – the process itself will still be available, but it’s now much less-attractive to anyone who wants to use it for the purposes of tax efficiency.”