Signs of distress at 33,000 Scots firms
Almost 33,000 businesses in Scotland showed signs of financial distress in the closing months of 2020, a new report suggests.
The figure is a 30 per cent increase compared with the same period the previous year and comes as the country faces astrictlockdownwhichislikely to remain in place until at least the middle of February.
The data, published by business rescue and recovery specialist Begbies Traynor, shows thatthesharpriseinbusinesses showing “significant” distress was reflected across the rest of the UK. This type of distress, which indicates early signs of financial problems, rose by 27 per cent across the UK as a whole in the final quarter of 2020 compared with the same period in 2019, affecting a total of 630,000 firms.
Scottishfirmsalsosawadeteriorating picture quarter on quarter,witha14percentrisein thoseseeingsignificantdistress since the third quarter, slightly above the UK wide figure of a 13 per cent increase.
In contrast, Scotland experienced a 40 per cent fall in businesses experiencing “critical” distress, which refers to firms that have had winding up petitions or decrees totalling more than £5,000 against them, by the end of the fourth quarter compared with a year earlier. There was also a 19 per cent fall in these advanced signs of
distress in Scotland quarter on quarter.
However, restructuring experts at Begbies said it was likely that those figures were the “tip of a very large iceberg”. The pandemic has reduced courtactivitylimitingthenumber of decrees and winding up petitions being issued against indebted companies and there has been a ban on winding up petitions for Covid-related debts.
Ken Pattullo, managing partner for Begbies Traynor in Scotland,
said: “It is extremely worrying to see such a huge rise in signs of early distress with so many Scottish companies struggling in the face of a continuedfall-offintradeafternine monthsofalmostconstantcovid restrictions.
“While instances of more advanced signs of distress have actually fallen, this is probably due to the Government’s insolvency prevention measures which,togetherwithpandemicrelated financial aid, are maskingthetruepicture.wefearthat
the latest research indicates escalating distress with more economic problems being stored up for further down the line, once these support measures are withdrawn.”
Every one of the 22 sectors in Scotlandmonitoredbythe“red Flag Alert” research experienceddouble-digitincreasesin significant distress levels in the finalquarterof2020compared withayearearlier–describedas a “worrying sign” for the economy as the financial situation worsenedformanycompanies.
The country’s all-important financial services sector was particularly badly hit with a 47 per cent year-on-year and 26 per cent quarter-on-quarter increase in significant distress as the effect of the pandemic bites. Despite the booming residential property market, the whole real estate and property sector – a key indicator of the economy’s performance – has seen significant distress rise by 35 per cent in the last quarter.