Bankruptcy report 'truly miserable reading' as Scottish firms hard hit

COMPANIES are going bust at a faster rate in Scotland than south of the Border, accountants warned yesterday, citing a "domino effect" where big clients going under knock over their smaller suppliers.

Scotland tends to have a higher proportion of small companies than England and Wales and so the effect is being felt harder here, according to experts at PKF.

Official figures released last month by the Accountant in Bankruptcy showed that a record number of Scottish firms went to the wall in the three months to 30 June as fragile consumer confidence and difficulties with bank lending continued to strangle the economic recovery.

Data posted yesterday by the Insolvency Service covering England and Wales revealed that a gulf was opening up between firms on either side of the Border.

The number of Scots companies failing rose by 19.7 per cent quarter-on-quarter compared with an increase of just 0.5 per cent in England and Wales.

Bryan Jackson, corporate recovery partner at accountancy firm PKF, said: "The much higher level of corporate failures in Scotland is of concern.

"I believe that many of these failures are among smaller Scottish firms and that some will simply be victims of larger firms going bust. The 'domino' effect of larger firms taking smaller firms with them is well known but I have seen many examples of firms who were not massively in debt but who simply lost their order book when a larger company went bust."

Jackson warned: "I have continued to see many long-established, well-known businesses going bust. Some of the owners, who may have been through two or three or more recessions in the past, have tended to believe that they can ride out the recession as they have in previous years.

"Unfortunately, this recession is unprecedented and its impact is still being felt by many businesses across Scotland. The much-anticipated upturn may be some way off."

Matt Henderson, business recovery and insolvency partner at accountancy firm Johnston Carmichael, said: "This makes for truly miserable reading, particularly when we see the stock markets in global meltdown. The hardest hit businesses are those in real estate, construction, hotels, bars and retail and the prospects for these businesses remain very challenging in the coming period."

Iain Fraser, Scottish spokesman for insolvency practitioners' trade body R3, added: "What these figures reveal is corporate Scotland is really struggling to cope with the after-effects of the recession."The tightening up of HM Revenue & Customs' 'Time to pay' scheme will undoubtedly be a factor in many of these corporate failures."

Scottish firms that fell into liquidation during the three months to 30 June included TalentNation, a social networking website set up by former Daily Record director and Scottish Sun editor Steve Sampson and backed by footballers Kenny Miller, Gary Naismith, Gary Caldwell and Scott Brown.

Scottish Enterprise petitioned the Court of Session to have the company wound up, the first time the agency has pursued such action.