More Scottish businesses are in critical distress

The number of Scottish businesses in ‘critical’ distress is markedly higher than in the rest of the UK, new data from Begbies Traynor reveals.

More Scottish businesses are in critical distress

Ken Pattullo

The Red Flag Alert report carried out by the insolvency specialist revealed that the number of Scottish businesses in such a sate has risen by 32% compared with the same period in the previous year. This has also increased by 35% since the previous quarter.

In contrast, the data reveals that there was an increase of just 8% year on year, and of 4% quarter on quarter across the UK as a whole.

Scotland’s construction sector is continuing to struggle with instances of ‘critical’ financial distress in the third quarter of 2019 rising by 30% since the previous quarter.

The quarterly research reveals that construction in Scotland was once again among the sectors showing a marked increase in ‘critical’ or advanced financial distress (which refers to businesses that have had winding up petitions or decrees totalling more than £5,000 against them). In Scotland, the sector also saw 3,600 instances of ‘significant’ or early distress (ie businesses with minor decrees against them and those showing a marked deterioration in key financial ratios).

Other sectors which saw relatively high numbers of businesses experiencing both advanced and early signs of distress were support services (4,004 instances of ‘significant’ distress in Q3 2019) and bars and restaurants (1,150).

‘Significant’ distress in all three sectors is continuing to grow year on year with bars and restaurants rising by 7%, and both construction and support services rising by 3%.

Other sectors which saw marked growth in ‘significant’ distress year on year include hotels and accommodation (10% rise) sports and health clubs (9% increase) and health and education, industrial, and real estate and property which all rose by 7%.

Across all sectors, Scottish businesses saw a 2% rise in ‘significant’ distress compared with the third quarter of 2018, with 25,248 businesses now in this category.

The research revealed that 489,000 UK businesses were in difficulty by the end of September, with the real estate and property, construction, retail and travel sectors most severely affected. The 8% year-on-year rise in companies facing critical financial distress has been seen as an indicator of looming insolvency.

Ken Pattullo, who leads Begbies Traynor in Scotland, said: “After three years of economic turbulence following the 2016 referendum, we are continuing to see businesses in Scotland, particularly in certain key sectors, suffering from the ongoing uncertainty and a lack of investment.

“With growing levels of construction businesses experiencing signs of both early and advanced distress, there is real concern about the knock-on effect on suppliers as well as on the economy as a whole - businesses are simply unable to plan for the future in the current economic limbo in which they find themselves.

“Consumer-facing sectors such as bars and restaurants are also feeling the pinch with confidence continuing to dive. It is painfully apparent that until we are given clarity on the economic situation post-Brexit, stagnation will remain as more businesses suffer.”

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