finance

Scottish insolvencies more than halve during first half, as zombie nation fears rise



The number of corporate insolvencies seen across Scotland more than halved during the first six months of 2021, as the array of government Covid-19 support measures and a supportive lending community continued to help businesses trade their way through the pandemic.

Analysis of notices in The Gazette by Interpath Advisory – formerly KPMG Restructuring – reveals that a total of 18 Scottish companies fell into administration or receivership from January to June 2021 – down from 37 in the first half of 2020 and 39 in the first half of 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 the first half of last year and 686 in the first half of 2019.

The analysis comes following publication of Treasury data which reveal that nearly £80bn of emergency government-backed loans were received by UK businesses during the coronavirus crisis.

Blair Nimmo, chief executive of Interpath Advisory, commented: “The dichotomy of having historically-low insolvency rates at a time of significant economic crisis is naturally prompting concern in some quarters that the taxpayer is propping up an army of zombie companies.

“But while it is fair to say that insolvencies are being suppressed artificially thanks to the raft of support available, we also know there are lots of good businesses out there whose balance sheets are broken solely due to the impact of the pandemic – so 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.”

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While he said that credit must be given to Scottish business leaders on navigating the last 15 months or so, they should be warned that with support measures, including the Job Retention Scheme, now starting to unwind, insolvency levels may start creeping back up again during the second part of the year.

“This may well be the case, albeit I’m personally not so sure 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.

“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.”

For many organisations, the knotty 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 rising inflation.

Alistair McAlinden, managing director at Interpath Advisory in Scotland, said: “The road to recovery will not be easy, with issues such as labour and raw material shortages and rising costs continuing to weigh heavily on many.

“In the short term, increased demand from consumers as restrictions lift may allow businesses to raise prices before the effect of higher input costs are felt. This could provide a much needed boost in profits and cashflow.”

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