Government measures help prevent jump in Scots insolvencies

Firms are being encouraged to focus on strengthening their operations, according to KPMG, which has also reported that government support measures including furlough appear to have stymied a feared rush of corporate insolvencies in Scotland – for now.

Blair Nimmo, KPMG UK’s head of restructuring. Picture: contributed.

The accountancy giant has revealed today that in November, there were 35 administrations or liquidations in Scotland – 23 fewer than the same period last year. Meanwhile, based on current trends, the total number of insolvencies for 2020 “looks set to be significantly lower” than the 491 seen in the previous year.

Experts say support measures – including the further extension of furlough until April 2021 – have helped keep above water many businesses that would have otherwise struggled to survive the pandemic.

Blair Nimmo, KPMG UK’s head of restructuring, said: “Comfort can be taken from the fact that we haven’t yet seen the deluge of companies falling into administration that many predicted, as the breadth and depth of support measures available, coupled with a supportive lending community, have given organisations vital breathing space in the crisis.”

But he said the old adage that “more companies fail coming out of a recession than fail going into it” will be front of mind for many bosses now trying to forward-plan their exit from lockdown.

He added that businesses will need to be careful not to fall into the “classic trap” of scaling up too quickly.

"Many will have burnt through cash reserves during 2020, and while some will have taken advantage of the various government support packages available, it must be remembered that at some point, loans will still need to be repaid.

“Companies should therefore think about embedding as much of the cost-saving gains made in their initial crisis response as possible into their day-to-day operations, as well as opening dialogue with key suppliers and financial stakeholders on repayment plans that support a recovery on both sides of the table.

"It will be essential to model the medium to long-term financial impact of a market that may ultimately operate on reduced activity levels, and importantly, assess the cost base required to support that, as it is highly unlikely to look the same as the pre-crisis operating model.”

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