Business

33,000 Scottish businesses showing signs of financial distress as Covid-19 restrictions continue



The number of businesses in financial distress in Scotland is continuing to soar, with almost 33,000 experiencing early signs of distress in the final quarter of 2020.

This 30% increase compared with the same period the previous year comes as the country faces a strict lockdown which is likely to remain in place until at least February.

The latest data from business rescue and recovery specialist Begbies Traynor showed a 14% rise in those seeing ‘significant’ distress since the third quarter of 2020, slightly above the UK wide figure of a 13% increase.

In contrast, the country experienced a 40% fall in businesses experiencing ‘critical’ distress – those that have had winding up petitions or decrees totalling more than £5,000 against them – by the end of last year, compared with the same period the previous year.

There was also a 19% fall in these advanced signs of distress in Scotland quarter-on-quarter.

However, it is likely that these figures are the tip of the iceberg, as the pandemic has reduced court activity, limiting the number of decrees and winding up petitions being issued against indebted companies – along with 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 continued fall-off in trade after nine months of almost constant Covid restrictions.

“We fear that the latest research indicates escalating distress with more economic problems being stored up for further down the line, once these support measures are withdrawn.”

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Every one of the 22 sectors in Scotland monitored by the Red Flag Alert research experienced double digit increases in ‘significant’ distress in the final quarter of 2020 compared with the last quarter of the previous year.

Scotland’s financial services sector was particularly badly hit, with a 47% year-on-year and 26% quarter-on-quarter increase in ‘significant’ distress, as the effect of the pandemic bites, along with uncertainty around post-Brexit equivalence.

Despite the booming residential property market, the sector has seen significant distress rise by 35% in the last quarter compared to the same period last year.

Scottish construction businesses have also been hit, despite activity being able to continue during lockdowns, with a 30% increase in early signs of distress year-on-year.

Scottish hotels also saw a 30% rise in early distress year-on-year, although these numbers are likely to be understated due to the short-term financial support options available which will be keeping thousands on artificial life support.

Pattullo added: “Although the Government has extended its Covid-19 financial support, this simply won’t be enough for thousands of businesses who likely will not survive in the interim.

“Although the UK’s announcement of a trade deal with the EU and the roll-out of Covid-19 vaccines offer some light at the end of a very dark tunnel, the situation is going to remain bleak over the next quarter and beyond.”

Through its proprietary algorithm, the Red Flag Alert measures corporate distress signals, drawing on legal and financial data from a range of relevant sources, including Begbies Traynor’s own intelligence.

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