Scottish firms suffer jump in ‘advanced’ financial woes

● ‘Advanced’ levels of distress higher than UK average ● Construction among worst-hit sectors in Scotland

The proportion of businesses experiencing advanced levels of financial distress has risen faster in Scotland than in almost any other part of the UK, new research suggests.

Scotland saw an 18 per cent year-on-year rise in the number of firms in “advanced” distress in the three months to June, compared with a Ukwide average increase of 5 per cent, according to the latest quarterly Red Flag Alert data from Begbies Traynor.

The corporate restructuring firm pointed to sustained political and economic uncertainty,aswellasaslowdownin consumer spending.

Its Red Flag report, which monitors financial health, it said growing financial distress in Scotland is evident across most industries, with the construction, food and beverage, and bars and restaurants sectors seeing the steepest rises.

Scottish construction firms continued to suffer escalating levels of “critical” distress – which refers to businesses that have had winding-up petitions or decrees totalling more than £5,000 against them – seeing a 42 per cent increase compared with the same quarter in 2018. This contrasts with a Uk-wide hike of just 5 per cent in the same sector.

In the second quarter, more than 25,400 Scottish companies experienced “significant” or “early” distress, referring to businesses with minor decrees against them and those showing a marked deterioration in key financial ratios. This represents a 1 per cent fall from the first quarter but is 2 per cent higher than the same period last year.

The average debt of an insolvent company rose to £66,226 a year, more than doubling from £29,872 in 2016.

However, total levels of “critical”distressacrossallbusiness sectors in Scotland decreased by 12 per cent compared with the first three months of the year, outperforming the UK average that fell by 1 per cent.

Ken Pattullo, who leads Begbies Traynor in Scotland, said: “Once again, we are seeing higher levels of businesses in Scotland facing advanced financial distress as they continue to try to operate amid ongoing political and economic uncertainty.

“The combination of a slowdown in consumer spending, together with rising levels of company debt, is worrying.

“The construction industry is continuing to suffer, with consumer-facing businesses such as bars and restaurants also showing a marked increase in levels of ‘critical’ distress.

“For smaller companies that are already feeling the squeeze, increasing debt levels can often be the final straw in a downward spiral.”

The report follows official Accountant in Bankruptcy statistics revealing that 239 Scottish-registered companies became insolvent in the quarter, marking a fall of 2 per cent from the same period in 2018.