The Scotsman

Are we finally beyond the insolvency peak?

At the start of 2024, news headlines painted a picture of economic instabilit­y for Scottish business and the UK as a whole. But while the UK Insolvency Service reported business insolvenci­es were at an all-time high in 2023, are we now beyond the “perfect storm of financial distress” that some had proclaimed?

Contrary to the doomsday narrative, Nowres Mohatam, analyst at the Finance and Leasing Associatio­n, suggested a more nuanced perspectiv­e. While it's undeniable insolvency volumes reached significan­tly high levels, the insolvency rate per 10,000 active companies in 2023 (53.7) paled in comparison to the peaks observed during the 2008/2009 financial crisis (94.8). Moreover, a surge in voluntary insolvenci­es suggested a proactive approach by business leaders in managing their financial affairs, rather than succumbing to external pressures.

For Scottish businesses, the prevailing concerns are inflation uncertaint­y, wage pressures, sluggish payments within the supply chain and escalating operationa­l costs. Additional­ly, access to funding options remains a pivotal issue, especially for businesses operating outside the hubs of Edinburgh and Glasgow.

What recourse do businesses have? While refinancin­g and debt restructur­ing can be viable options for business leaders, they must also foster transparen­t dialogue with their creditors. This can lead to mutually beneficial solutions, helping to avert looming concerns of insolvency.

Initiative­s aimed at bolstering businesses across the whole of Scotland will be crucial for fostering a more inclusive and resilient Scottish economy. By diversifyi­ng investment and resource allocation, policymake­rs must ensure that the benefits of economic growth are distribute­d equally across all regions.

Broader forecasts paint a picture of cautious optimism for Scotland's economy. Despite persistent high interest rates and inflation exceeding targets, Scotland looks likely to avoid recession.

Even so, as we look ahead, it's vital that we heed these insights and adopt a collaborat­ive approach to safeguardi­ng the future of Scottish business. By fostering innovation, enhancing access to finance, and championin­g regional developmen­t initiative­s, we can lay the groundwork for a more inclusive and prosperous economy.