Insolvencies are returning to ‘pre-Covid norms’ in Scotland
Scotland is now getting back to 'pre-Covid norms' when it comes to insolvencies and company voluntary arrangements (CVAs), according to Euan McSherry, legal partner specialising in commercial, corporate and property litigation at Aberdein Considine.
McSherry is drawing on the experience of his own team of about 20 people, who work closely with other departments in the growing Scottish law firm, as well as on trends in the wider market.
He says: “My team is at the forefront of dispute resolution and are able to connect with all of our firm’s other practice areas, such as commercial property and private client.”
When it came to possible insolvencies during the pandemic, McSherry explains that many companies were “kicking the can down the road”. This was followed by a period of about 18 months when companies tried to sort themselves out without the need for external intervention. But a sense of normality has gradually returned, with a large increase in appointments for liquidations and administrations.
“There is currently a lot happening in the retail sector with commercial property landlord and tenant disputes, and there is quite a bit of parent company guarantee work,” adds McSherry. “At the moment we have three actions in Scotland and one in England where we were going against the tenant company, but it now involves the parent company because of guarantees that were granted.”
Where there isn’t a guarantee, a property can generally just be taken back, but that comes with its own problems, warns McSherry.
“The phrase ‘death of the high street’ has been used for about 15 years and it’s without doubt an ongoing issue,” he says. “You only have to walk down the main streets of Scotland’s cities to see the problem. Although it doesn’t seem to be quite as bad in Glasgow as it is in Aberdeen or Edinburgh. My commercial property colleagues report a lot of activity in Glasgow with new landlords coming in, whereas, in Edinburgh, with its big, institutional landlords, activity levels are lower. This may be as a result of the former market involving closer relationships between representatives of landlords and tenants than the latter..”
Turning to the private client side of Aberdein Considine’s business, McSherry says it’s interesting to examine how large rural estates are evolving and how this can lead to disputes.
“In many estates you now have a marriage of traditional farming activities and new commercial elements covering a broad range of sectors, such as renewables, including wind farms and biomass generators, and hospitality, such as wedding venues,” explains McSherry. “You tend to have two distinct camps. There are estates that are completely well organised and have the likes of detailed succession plans and commercial contracts in place, where everyone understands the different corporate entities. There are rarely disputes in those estates. And there are others that have nothing in place, so as soon as the matriarch or patriarch dies, problems arise from the power vacuum that’s left and there are battles between siblings. Obviously this will be around laws of succession, but disputes can also have an insolvency element on the commercial side around land ownership by various companies. In those situations, several practice areas within our firm can get involved.”
In terms of trends and patterns with commercial disputes across sectors, McSherry says that mediation still only tends to be used once an action has progressed in court and is moving towards an evidential hearing. “This brings with it huge costs, and even if you win your recoverable costs might not be anywhere near what you’ve spent. So, mediation often comes into use just before the evidential hearing stage,” says McSherry. “Mediation is becoming more prevalent in larger disputes. It is to be hoped that this is recognition of it being an attractive and valid way of resolving a dispute.”
Another recent development pinpointed by McSherry is increased activity around commercial debt recovery, partly down to cash flow pressures in bigger entities, including utility companies.
“We’ve also seen some local councils chasing industrial and commercial firms for business rate debts. There’s a greater level of enforcement now, and it is being taken sooner. For a long period during and after Covid there was more willingness to negotiate, but the attitude has changed,” adds McSherry. “Smaller and medium sized businesses are feeling the pressure as a result. We have raised this with councils. A staged approach to payments could work better and avoid insolvencies. We recognise they want to get paid, but a company has to be solvent to pay.”