Advanced financial distress continues to climb in Scotland

Ken Pattullo

The growing financial distress in the country is evident in most sectors with construction, food and beverage, and bars and restaurants businesses seeing the most marked rises, according to the latest data from insolvency specialist Begbies Traynor.

The latest quarterly Red Flag Alert data, which monitors financial health, reveals that while businesses across the UK as a whole saw a 5 per cent rise in the number of businesses deemed to be in ‘critical’ distress in the three months from April 2019, there was an 18 per cent increase in advanced distress in Scotland compared with the second quarter of 2018.

According to the research, the average debt of an insolvent company had more than doubled to £66,226 a year, from £29,872 in 2016.

In Q2 2019, Scottish construction firms continued to suffer from escalating instances of ‘critical’ distress compared with the same period last year, with a 42 per cent increase here while across the UK there was a rise of just 5 per cent. This type of distress, which refers to businesses that have had winding up petitions or decrees totalling more than £5,000 against them, was also seen in the food and beverage sector, and among the bars and restaurants sector both of which experienced sharp increases year on year.

In Scotland, total levels of ‘critical’ distress across all sectors decreased by 12 per cent compared with the first three months of 2019, and fell by 1 per cent across the UK as a whole.

In the second quarter of 2019, 25,408 Scottish businesses experienced ‘significant’ or early distress (ie businesses with minor decrees against them and those showing a marked deterioration in key financial ratios), a 2 per cent increase compared with Q2 2018, and a 1 per cent fall quarter on quarter. Across the UK, there was a 3 per cent rise in ‘significant’ distress compared with the same period the previous year, and no change since the previous quarter.

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. It’s vital that SMEs keep a close eye on cash flow and seek professional advice at the first signs of financial distress.”