Ken Patullo

According to the latest Red Flag Alert data, published by Begbies Traynor, businesses in Scotland suffered a 10% rise in ‘critical’ distress (which refers to businesses that have had winding up petitions or decrees totalling more than £5,000 against them) in the three months from October 2021, compared with the third quarter of the year. This is markedly higher than the rest of the UK which experienced a quarter on quarter increase of just 1%.

However, looking at the same period the previous year, levels of ‘critical’ distress in Scotland had fallen by 33% in Q4 2021, compared with a 7% increase across the UK as a whole year on year.

Similarly, levels of early-stage or ‘significant’ distress (which refers to companies that have financial problems such as minor decrees of less than £5,000 filed against them) in both Scotland and across the UK grew quarter on quarter at the end of 2021, but saw a fall year on year. In Scotland, 29,902 businesses experienced instances of ‘significant’ distress in the final quarter of the year, representing a 4% increase since Q3. This was slightly below the UK figure of 5%, representing 589,168 businesses.

The country saw an 8% fall in this type of early distress compared with the same quarter of 2020, close to the UK average of a 6% decrease compared with the same period the previous year.

Ken Pattullo, partner for Begbies Traynor in Scotland, said: “Since the outbreak of the pandemic in spring 2020, businesses have been on a roller coaster ride. From complete lockdowns to ever-changing Covid restrictions or coping with spiraling demand amid global supply chain disruption and labour shortages, they have faced a tidal wave of challenges, all of which have heightened uncertainty and made planning and forecasting almost impossible.

“In this climate, it is no surprise that advanced financial distress is continuing to escalate for many businesses and it is particularly worrying that the situation appears to be more severe in Scotland.”

In Scotland, almost all sectors saw a rise in ‘significant’ distress since the previous quarter with utilities (10% increase) and travel and tourism, food and beverages and wholesale (all-seeing a 9% uplift) among the worst hit. No sectors in the country experienced a quarter on quarter fall in early distress.

Mr Pattullo continued: “While 2021 saw some signs of economic growth, we were once again put firmly on the backfoot with the emergence of the Omicron variant in the last quarter devastating the normally busy Christmas season for many sectors with consumers rapidly curtailing their festive plans and businesses struggling with staff absenteeism as the UK reeled from a record number of infections.

“Unfortunately, looking at the year ahead, we are also faced with the likelihood of rising prices and inflation as energy costs increase dramatically, squeezing both businesses and consumers. With the government resisting calls to provide more help for firms struggling since the latest outbreak, together with the withdrawal of pandemic support and tax rises, there are still tough times ahead and directors would be well-advised to seek professional advice at the first signs of financial distress.”