Concern over zombie firms rises as Scottish business failure rate drops

Business failures could start to rise in the months ahead as government support measures start to unwind, an insolvency expert has warned.

Insolvency expert Blair Nimmo believes company failures may rise in the months ahead, but he doesn't see a rapid escalation.

Although new figures show the number of corporate insolvencies seen across Scotland more than halved during the first six months of 2021, Blair Nimmo said there are concerns that the taxpayer is propping up “an army of zombie companies”.

Nimmo, who is chief executive of Interpath Advisory – formerly KPMG Restructuring – said while insolvencies are being suppressed artificially thanks to the raft of support measures available, he stressed there are “lots of good businesses out there whose balance sheets are broken solely due to the impact of the pandemic”.

“It is only right they continue to be given the time and the support to be able to build their way back out of the crisis,” he said.

His comments came after analysis of official figures by Interpath revealed that a total of 18 Scottish companies fell into administration or receivership from January to June 2021 – down from 37 in H1 2020 and 39 in H1 2019.

The downward trend seen in Scotland mirrors that seen across the wider UK, where a total of 301 companies fell into administration or receivership from January to June 2021 – down from 655 in H1 2020 and 686 in H1 2019.

Although cases may start to increase as Covid support measures, including the Job Retention Scheme, start to unwind, Nimmo said he isn’t convinced cases will escalate rapidly.

“All stakeholders, including banks and HMRC, continue to be pragmatic in their approach to companies experiencing difficulties as a consequence of the pandemic and there is lots of cash available from investors ready and waiting to be deployed,” he pointed out.

“So while insolvency practitioners will inevitably get busier, I don’t think we will see the deluge of corporate failures across Scotland that many have predicted.”

Nimmo said for many organisations, the issue of how and when to repay Covid-related liabilities and how this will affect the road to recovery is being exacerbated by raw material and labour shortages, as well as signs of rising inflation across the economy.

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