Bust Scotland

About 1,000 companies will go bust and 12,000 Scots will be made bankrupt in the coming year, a report Business advisers BDO has predicted. Cooling consumer demand, geopolitical and financial uncertainty and potential interest rate rises were cited as causes for concern.

Bryan Jackson, business restructuring partner with BDO, said: "For many companies and individuals there is the prospect of another year of standing still as profits remain flat and incomes are static. The slightest change in any circumstances could have serious consequences… it is of concern that even six years after the start of the recession there are still so many firms going bust.”

Bankrupt Scots

Twenty Scottish businesses are forecast to go bust each week this year, with 40 Scots being declared bankrupt each day as the nation continues to struggle under a mountain of historic debt.

Just under 15,000 Scots were sequestrated – the Scottish term for bankruptcy – or took out a protected trust deed (PTD) last year and a similar figure will go bust by the end of this year, BDO warned.  Bryan Jackson, a partner at accountancy firm BDO, which made the predictions said that “rising utility bills, higher food costs and frozen wages” meant that people struggling with debts were also only able to pay off the interest rather than the amount they borrowed. Such individuals could be “tipped over the edge” by increases in their living costs or reductions in eg, overtime payments, he added, or by changes in personal ­circumstances such as divorce or unemployment. Jackson added: “Although the number of Scots being made bankrupt has reduced in the past few years from a peak of 23,500 in 2009, it has settled at a disturbingly high level. Prior to 2008, a figure of 15,000 Scots a year being bankrupted would have seemed outrageous but we have got used to a very high level of personal insolvency since the recession began and seem to accept these numbers as the inevitable consequence of the economic downturn. They may use payday loans to cover themselves in the short term but the debts will simply accumulate and eventually they will be made bankrupt.”

Many companies are only managing to service the interest on their debts rather than paying off the money they owe. This leaves firms in a precarious situation if interest rates begin to rise, as they will be unable to meet their repayments. Jackson  said: “Worryingly, many businesses are simply paying interest on debts that are never reduced. A rise in interest rates, reduced income, or a change in the marketplace and these businesses will collapse.”

Bankrupt Scots

The recent downward trend in the number of individuals and companies going bankrupt in Scotland has reversed dramatically in recent months, official figures show.

In the first quarter of 2013-14 (April to June) personal insolvencies were up 14.7 per cent and corporate insolvencies were up 28.7 per cent.

Bryan Jackson, business restructuring partner with BDO LLP, said the rise in payday and short-term lenders points to "serious financial problems among thousands of Scots".

Mr Jackson said: "Following recent falls, the increase in the number of personal insolvencies in the second quarter suggests that the pent-up indebtedness of many individuals has burst through.There is little doubt that many individuals have been living from month to month, or week to week, simply feeding the interest on their debts rather than reducing the debt itself. Until now, this has delayed some from falling into insolvency, but this quarter's figures suggest that their financial situation has deteriorated beyond the point where they could cope and this has resulted in their bankruptcy. Unfortunately, I would not be surprised to see continued increases in personal insolvencies in the months to come. The increase in the number of payday and short-term lenders is indicative of serious financial problems among thousands of Scots whose circumstances will only be exacerbated by such loans."

A prosperous New Year ?

Accountancy firm PKF has predicted more than 20,000 people will be declared insolvent in 2012. The report claimed even relatively affluent Scots could find themselves unable to cope with the downturn. PKF also predicted an average of 25 Scots firms a week would go bust this year.

Bryan Jackson, PKF corporate recovery partner, said: "...the fluctuations in the economy, the difficulties in the eurozone, and the clear impact of public sector cuts is increasing the number of Scots facing financial difficulties." He added: "The dramatic rise in the number of more affluent Scots being made bankrupt is a further sign that the after-effects of the recession are spreading among all sectors of society, with the result that I believe all personal insolvencies will continue to rise and remain at high levels for several years to come."

Insolvency trade body R3 Scottish council member John Hall said : "Many Scots are in a situation where they simply cannot survive any longer. They are what we call 'zombie' debtors who can only pay the interest on their debts each month. Therefore any slight change in their circumstances means they are likely to be plunged into insolvency."

capitalism won't collapse

Official figures released last month by the Accountant in Bankruptcy showed that a record number of Scottish firms went to the wall in the three months to 30 June. The number of Scots companies failing rose by 19.7 per cent quarter-on-quarter.

Matt Henderson, business recovery and insolvency partner at accountancy firm Johnston Carmichael, said: "This makes for truly miserable reading, particularly when we see the stock markets in global meltdown."

"I believe that many of these failures are among smaller Scottish firms and that some will simply be victims of larger firms going bust. The 'domino' effect of larger firms taking smaller firms with them is well known but I have seen many examples of firms who were not massively in debt but who simply lost their order book when a larger company went bust." Bryan Jackson, corporate recovery partner at accountancy firm PKFwarned: "I have continued to see many long-established, well-known businesses going bust. Some of the owners, who may have been through two or three or more recessions in the past, have tended to believe that they can ride out the recession as they have in previous years. Unfortunately, this recession is unprecedented and its impact is still being felt by many businesses across Scotland. The much-anticipated upturn may be some way off."

Iain Fraser, Scottish spokesman for insolvency practitioners' trade body R3, added: "What these figures reveal is corporate Scotland is really struggling to cope with the after-effects of the recession."

Once the recession is upon us, conditions that are favourable to a recovery become apparent. Companies that declare bankruptcy sell off their assets cheaply to their rivals. Less demand for producer goods means lower prices. The reserve army and many others are laid off creating a competition for jobs and thus lowering wages. Lower demand for loans reduces interest rates like any other commodity. The large stocks built up before the advent of the recession gradually decline to a point where production is again necessary. All of these factors make investing in production more attractive and the cycle begins its upward swing. It is evident then that the seeds of every boom are to be found in every recession and, conversely, the seeds of every recession are to be found in every boom. This boom and bust cycle is an entirely natural occurrence of the capitalist mode of production. It hasn’t collapsed capitalism yet, and, in fact, recessions tend to strengthen the system by weeding out the weak and inefficient enterprises.

Paying the Price

The number of people going bankrupt has seen its biggest quarterly rise in three years, up 25% on the previous quarter.

Official figures from insolvency supervisors Accountant in Bankruptcy (AiB) showed 5,319 personal insolvencies in Scotland in the first quarter of the current tax year. It is the biggest increase since 2008.

Citizens Advice Scotland chief executive Lucy McTernan said many Scots struggling with heavy debts were choosing bankruptcy as the "lesser of two evils".
She said, "If you are struggling with debt which has become unmanageable, and you really can't see a way out of it, then bankruptcy can be your only realistic course of action."

Experts warned the increase is only the "start of a trend" in the months ahead as the full impact of spending cuts and a stagnant economy start to bite.

Bryan Jackson, corporate recovery partner with accountancy firm PKF, said: "This dramatic rise in the number of personal bankruptcies in Scotland is a sign that the impact of the recession is still being felt. This must be due to rising utility, food and fuel prices coupled with a freeze in pay which means that hard-pressed individuals are now succumbing to years of built-up indebtedness." He warned: "Given that we have yet to see the full implementation of public sector job cuts, these figures would tend to indicate the start of a trend rather than the end and I believe that the number of Scots being made bankrupt will increase for some time to come."

Iain Fraser, Scottish spokesman for insolvency professionals trade body R3, added; "It is highly likely that financial pressures will continue to produce high levels of personal insolvency among Scots for some considerable time."

Gordon MacRae, head of communications and policy at Shelter Scotland, said: "The increase in individual bankruptcies is worrying. As Scotland begins to feel the full impact of savage cuts to jobs and housing benefits, and as more people face even greater debt, the perfect storm is brewing for a rise in homelessness."

Cash-strapped consumers are increasingly turning to discount supermarkets to slash their spending on food, as soaring prices force them to change their shopping habits, according to a new report. The prolonged squeeze on their pockets is making millions of shoppers more savvy when they visit high street stores and is forcing them to change their habits at the tills. Essential foods such as bread, meat, milk, cheese and eggs increased markedly month on month, putting yet more pressure on already struggling households. 84 per cent of people across the UK are worried about the rising cost of food - with food prices continuing to climb. A third of those surveyed told Which? they had already reduced their spending on groceries this year. People have changed which foods they are buying to cope with higher food prices, switching to cheaper brands, bigger value packs and more supermarket own-brands. Shoppers are also putting less organic food in their baskets.

A bankrupt society

A record number of Scots will be made bankrupt in 2011, according to accountant and business adviser PKF. Accountancy firm RSM Tenon also predicts that personal insolvencies in the UK will set new records in 2010 and 2011.

PKF predicts that final figures will show about 22,000 Scots were sequestrated (the Scottish term for bankruptcy) or took out a Protected Trust Deed (PTD) in 2010, or 425 a week, and that this year will see even higher levels of personal insolvency. Personal bankruptcy during 2011 will be impacted by the Comprehensive Spending Review (the full impact of the CSR is yet to be felt) , which is likely to result in higher levels of unemployment among public sector employees, and potentially by the effects on mortgage-payers of rising interest rates.

“Many people are only able to cling on to their homes as long as their mortgage payments are being kept at an historicallly low level due to the 0.5% base rate. Once interest rates start to rise, I believe we will begin to see a considerable growth in what might be termed the “middle class insolvent” Bryan Jackson, corporate recovery partner, explained. It was likely that interest rates would have to start rising this year, whereas the housing market was unlikely to start a recovery until 2012 at the earliest, which meant “there will not be the escape route of rising equity to reduce debts which has been used by thousands of individuals in the recent past”.

The VAT increase, coupled with rising utility costs, would pile further pressure on those who were staving off insolvency. There is already evidence of an increased take-up of payday loans and other products from high-interest lenders which only temporarily put off the inevitable.

credit crunch bites

The number of Scots declared bankrupt is rising at record levels, figures have revealed.
Finance experts PKF said in the third quarter of 2008, 5,998 people had been made bankrupt or entered a voluntary repayment agreement with creditors.
The firm said this was an increase of 26.7% on the previous quarter and a 70% rise on the same quarter of 2007.
A total of 14,008 Scots have been made bankrupt so far this year, while the total figure for 2007 was 13,814.
PKF said around 20,000 Scots could be declared bankrupt by the end of 2008.

Bankrupt Scotland

From an editorial in The Herald

Although it is traditionally people on the lowest incomes who get into debt they cannot repay, the boom in consumer credit, fuelled by rising house prices, has brought many middle-class families to the point where they are only a couple of pay packets away from not being able to meet their repayments. It only takes one setback, such as their marriage ending or losing their job, to plunge them into unmanageable debt.

The 14.5% increase in the number of Scots being declared bankrupt between 2006 and 2007, however, is likely to be a harbinger of worse to come. The scale of the situation is brought home by the fact that the 1563 Scots declared bankrupt in the last quarter of 2007 amounted to nearly twice the average number for any three-month period three or four years ago.
This is a reflection of the record levels of personal debt (one estimate of Britain's debt from credit cards, loans, overdrafts and mortgages is £1.35 trillion) but when that level of borrowing collides with the current credit crunch, these personal disasters will be multiplied. That is expected to happen later this year as fixed-rate mortgages reach the end of their term and require to be renewed, with lenders imposing higher rates to reflect the overall increase in interest rates since August 2006.

There can be no doubt that the tide of debt is rising alarmingly. Home repossessions leaped by 30% in the first six months of last year and householders in Scotland cannot necessarily rely on the relative stability of the housing market north of the border to protect them from the perils of negative equity. Both Motherwell and central Glasgow have been pinpointed as high-risk areas on the latest map produced by the credit reference agency Experian.

With Scottish companies failing at a rate of approximately 55 per month and the Financial Services Authority describing 840,000 mortgages as a cause for concern, the outlook is particularly grim.

Preferential Treatment

How different the government can respond to some financial woes .

Mr Darling told MPs the government had a clear duty to protect the public interest . The government put up huge loans to save the Northern Rock bank , emergency funding equivalent to twice the amount of the annual primary school budget. Deposits of savers would continue to be fully guaranteed .

Contrast now the collapse of the Farepak Christmas savings club that last year drove many of its low-income victims into a cycle of debt according to a union-sponsored report . Many of those affected were low-paid women saving small sums for Christmas who went into debt to buy the gifts they had been expecting to purchase with their Farepak savings . Over 122,000 people have lodged claims , and they have been told to expect just 5p in the pound for their claims, and that there will be no payout this year.

Centre for Crime and Justice Studies Director Richard Garside. said "Many Farepak customers are asking why, if the government was prepared to underwrite Northern Rock to the tune of billions of pounds, no comprehensive help has been forthcoming"

"I think it is annoying that they just treat ordinary working class people like that..." said one victim of the company's collapse .

And there lies the answer ....ordinary working class people are treated that way by the capitalist system just because they are working class .

The Bankrupt System

Research based on a study of 1,250 bankrupts in England and Wales found the proportion of pensioners going bankrupt has more than doubled in five years . Of bankruptcies in England and Wales during 2007, 7% involved retired people - up from 3% in 2002 . This meant 7,900 pensioners were declared bankrupt over the past year, compared to 900 five years previously.

Researchers warned that the figures are likely to get even higher, as increased life expectancy and rises in the price of food and fuel put a greater strain on the limited savings of many pensioners.

Keith Stevens, insolvency partner at Wilkins Kennedy, said: "More and more pensioners are going bankrupt as they struggle to repay debts when their pension is their sole source of income. "

Senior citizens could be missing out on money to which they are entitled because of the complexity of the government's pension credits system

Older people unused to being offered credit "may take on unmanageable levels of debt".

The problem might be worst in rural areas. That could be because of pensioners not being able to rely on free public transport, and fewer opportunities for part time work.