Insolvency and Restructuring in Scotland: What does 2022 hold?

The easing of restrictions has allowed us to be out and about speaking at length to Insolvency Practitioners, Companies, other Accountants and Solicitors. It has been interesting to discuss the state of the real economy and what people think is likely to happen as Government support is eased, and it appears likely, the effective moratorium on Creditors petitioning to wind up companies being removed at the end of September.

A wide variety of views are being expressed. There are still some that suggest that a tsunami of insolvencies will follow quickly. Others take a far more hawkish view of the economic recovery. They suggest that ultimately many industries have ridden out the worst of the storm and there is not likely to be a huge spate of liquidations, administrations and CVAs in the foreseeable future.

Any honest commentator has to acknowledge that most of us have got the speculation wrong in relation to how the pandemic would affect insolvencies. In Spring 2020 most of us expected a wave of insolvencies beginning towards the end of 2020. None has materialised; in fact insolvencies are around 50% down on the pre-Covid rates by some measures.

That is what we hear in the market; namely that things are very quiet. One has to remember that as one insolvency practitioner has pointed out to us, the majority of compulsory insolvencies in Scotland are brought about to some degree because of pressure by HMRC. That pressure often leads to a court winding up or directors taking action in relation to a CVL or Administration.   The attitude HMRC take to chasing debt has changed immensely during the pandemic. HMRC previously were often difficult to deal with if time to pay arrangements were being sought. On the other hand during the pandemic they have been very good to work with if a company has needed time to rearrange its payments of liabilities.  It is also unclear how trade creditors and banks (and indeed other lenders and security holders) will behave following the removal of the prohibition on creditor winding up petitions where Companies are Covid affected. We suspect that politically banks particularly will continue to work with debtor companies where they believe they are acting in good faith in trying to offer repayment options. It seems to us in the short term therefore unlikely that there would be anything that could be described as a tsunami of insolvencies. We may, however, be wrong!

On the other hand there are industries and sectors that have changed beyond recognition. There are also companies that were already zombies or under performing and illiquid before the pandemic. In ordinary course they would have entered insolvency by now. Many of them have been propped up by the furlough scheme and other Government support systems such as bounce back loans and even the CBILS. It may well be that as the winter progresses, for example in retail and hospitality (although hospitality has stood up to pandemic pressure better than perhaps anyone expected) we may see insolvency numbers increase. Our house view is therefore that we can expect insolvencies to increase in 2022 and by the end of 2022 we might have an increase of formal distress compared to 2019/2020 levels;  but not such an increase as would be described as a tsunami or similar.  Many other views are available and while there are extremely difficult times for individual companies across the UK we can be glad (in relative terms) about how the real economy has stood up to the pandemic pressure. 

Contact our Insolvency Lawyers Edinburgh, Wick and Aberdeen, Scotland

BBM Solicitors specialise in advising IP’s in both contentious and non-contentious matters (including transactional work).

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