Covid crisis sees 38,000 Scottish businesses suffer 'significant' financial distress

Some 38,000 businesses in Scotland are showing “significant” financial distress after a jump in the opening months of 2021, with many only managing to survive thanks to government life support, new figures suggest.

The latest Red Flag Alert data from business rescue and recovery specialist Begbies Traynor shows that in Scotland there has been a 45 per cent year-on-year rise in the early signs of financial distress with 38,000 businesses in the country now affected.

Ken Pattullo, the firm’s managing partner for Scotland, said: “After more than 12 months of multiple lockdowns and restrictions, the true extent of the financial pressures facing businesses is still largely being masked by the government’s insolvency prevention measures which makes these latest figures even more concerning.

“While there has been a striking reduction in advanced distress in the last quarter, this is almost exactly mirrored by the increase in early distress. Although the government has been successful in delaying liquidations and bankruptcies, there is still an enormous quantity of financial trouble being stored up for when these and other support measures come to an end, which is likely to be later this year.

Many businesses have not survived the economic crisis brought on by the pandemic.

“What’s more, with the courts still struggling to catch up on the backlog, there are likely to be many more actions against indebted companies in the pipeline,” he added.

Across the UK as a whole, almost 100,000 more businesses tumbled into financial distress in the past three months as the impact of the pandemic continued to weigh on firms.

The Red Flag Alert report found that around 723,000 businesses were in significant financial distress in the quarter to the end of March.

It noted that this represented a jump of 93,000, the largest increase reported since the research started in its current form in 2014.

Begbies Traynor’s data highlighted that this represented a 42 per cent jump in companies in financial distress since one year earlier, prior to the full impact of the pandemic.

Partner Julie Palmer said: “Our experience shows that unmanageable levels of debts and subsequent overtrading are likely to be the hidden icebergs waiting to sink even the highest profile businesses.”

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