One in three Scots firms at ‘elevated’ risk of insolvency

One in three Scottish-registered companies presented a higher-than-usual risk of insolvency this month, though the UK-wide figure was even higher, according to the restructuring trade body R3.

Tim Cooper is chair of R3 in Scotland and a partner at Addleshaw Goddard. Picture: Renzo Mazzolini Photography

Of the sectors monitored by R3, Scotland’s construction and transport industries performed relatively well compared with other areas of the UK, coming second-lowest in the tables for elevated risk levels.

The news was less positive for Scotland’s manufacturers, which displayed the third highest level of elevated insolvency risk of anywhere in the UK.

Overall, 33.8 per cent of Scottish-registered businesses had a higher-than-usual risk of insolvency, compared with 41.1 per cent for the UK as a whole. The south-east of England was the region with the highest level of companies showing elevated risk levels, at 44.8 per cent.

Tim Cooper, chair of R3 in Scotland and a partner at Addleshaw Goddard, said: “Having one in three Scottish-registered companies at above-average risk of insolvency is a stark reminder that it’s tough out there for a number of businesses, and – although overall levels of elevated risk are lower than in other parts of the UK – Scottish enterprises need to be aware of the potential hazards out there.

“Uncertainty is depressing order books, as companies hold back spending decisions for a more settled time. Unfortunately, while this may be a rational idea on an individual basis, the overall economic effect is less helpful, as cashflows stutter due to reduced demand.

“The result of the general election, and the prompt passage of the UK government’s EU withdrawal bill, may alleviate the effects of ‘uncertainty’ to a degree, so it will be interesting to see the impact after Q1 of 2020.”

Volatile

He added: “The transport and construction sectors are notoriously volatile, with low margins and fluctuating costs perennial sources of concern for many operators. It is somewhat reassuring, then, to see Scotland’s sectors performing relatively well in comparison to elsewhere in the UK – although no business can afford complacency, with one misjudged decision sometimes all it takes to tip a company into difficulties.”

The figures are from R3’s latest insolvency risk tracker.

Meanwhile, a majority of Britain’s small and medium-sized enterprises (SMEs) have cited a better business performance in 2019 than the year before.

Research from alternative finance provider Nucleus Commercial Finance found that 55 per cent of SMEs enjoyed a better-than-expected outcome in 2019, despite ongoing political and economic uncertainty.

This success was most prominent among young business owners (aged 18-34), with nearly three quarters (74 per cent) saying their business had performed better this year.