Scotland corporate insolvencies remained level through Q1

The number of Scottish registered companies becoming insolvent remained level for the first quarter of 2016, according to figures from Accountant in Bankruptcy (AiB), the body responsible for administering the process of personal bankruptcy and recording corporate insolvencies in Scotland.

The figures show that there were a total of 197 corporate insolvencies in Q1 2015. This was the same number as in the last quarter of last year, although Q4 2016 did represent a fall in insolvencies and the figure for both quarters is 21.2% lower than for the first quarter of 2015.

Of the 197 corporate insolvencies recorded over Q1 2016, one involved a receivership, 126 involved compulsory liquidation and 70 involved creditors’ voluntary liquidation.

There were also 147 members’ voluntary liquidations. A member’s voluntary liquidation, or MVL, is where the shareholders of a solvent company adopt a voluntary winding up resolution and appoint a liquidator to realise the assets of the business in order to distribute the proceeds to company members.

These are recorded separately to the insolvency figures. Again, the level of MVLs has stayed flat, with 147 being recorded in Q4 2015. There had been a steep jump in the number of MVLs in that quarter however, with the figure representing an 88.4% rise over Q3 2015.

It should also be noted that the AiB figures do not include information on corporate administrations, as these are a reserved matter, meaning they are legislated by the UK rather than Scottish Parliament.

R3 in Scotland, the trade body for Scottish insolvency and business rescue professionals, suggested that the rise in MVLs may be linked to changes in the rules governing Entrepreneurs’ Relief.

Since 5 April 2016, the relief is no longer available for business owners sell or liquidate their company and then continue to undertake a similar trade or activity at any point over the next two years.

The change was designed to stop business owners avoiding higher taxes on income or dividends by storing up funds in their company, going through a solvent liquidation and claiming Entrepreneurs’ Relief on Capital Gains before setting up a new company with which to carry on trading.

By Phil Smith

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