Recession hitting Scottish 'veteran' companies hard

THE recession has taken a harder toll on older businesses in Scotland than in any previous downturn, according to analysis of the latest insolvency figures.

• Accountants have reported a rise in the number of cases in which the tax man is chasing

Younger businesses - which typically have higher levels of debt and less experienced management teams - tend to be more susceptible to failing during a recession.

But accountancy firm PKF yesterday revealed that it was dealing with more failures of long-established companies than it would normally expect during an economic downturn.

The firm suggested there was "no single reason" why more established companies are failing but said some firms had expanded at the wrong time during the economic cycle, while others had not reacted quickly enough to changing marketplaces and the downturn in the economy. They also pointed the finger at "unsympathetic lending" from the high street banks.

Bryan Jackson, corporate recovery partner with PKF, said: "What is of concern is that many of these businesses that have failed would not have failed in earlier recessions.

"These are businesses that have operated successfully for generations and it is indicative of the unprecedented circumstances that we have gone through that they have now failed."

Jackson added: "I don't believe these will be the last of these long-established businesses to fail as we still have to factor in a potential increase in interest rates and the effect of public sector cuts on the economy."

PKF has been involved with a string of failures involving older businesses, the most high-profile of which has been the administration of Dundee Football Club, which was established in 1893. The club's creditors will meet on Tuesday to vote on a creditors' voluntary agreement (CVA) for the club. CVAs have been used in recent years by retailers including Blacks Leisure and JJB Sports to manage their debts by coming to new repayment agreements with their creditors.

Other failures in which PKF has been involved include the receivership of East End Sawmills, which was established in 1951 and had sites in Glasgow and Cumbernauld. The firm collapsed in August with the loss of 55 jobs following the collapse of the construction sector.

Gilchrist & Lynn, a 58-year-old Airdrie based building firm, was another victim of the recession. First aid kit maker Frank Sammeroff went into voluntary liquidation in September after 71 years in business. The company had employed 43 staff in Scotland and a further 70 in Shanghai but is understood to have expanded into China at what turned out to be the wrong time in the economic cycle.

Jackson's analysis of the trend came as official figures released yesterday by the Insolvency Service showed that business failures in England and Wales fell by 15.9 per cent last year.

The data contrasted with the figures for Scotland, which last month showed that the number of firms hitting the wall reached a record level in 2010. Jackson said a number of factors could explain the differences in the figures north and south of the Border.

He said that Scotland often trailed England in the economic cycle and so the peak in insolvencies may have already happened in the south.

Jackson said this would also account for a time lag in winding up notices issued by HM Revenue & Customs (HMRC) over unpaid tax.

HMRC's "time to pay" scheme had allowed businesses to settle their bills over a longer period of time but several accountants have now reported a rise in the number of cases in which the tax man is chasing companies for payment.

Jackson said different lending patterns from banks north and south of the Border could also explain the differences in the insolvency data.