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Steep rise in companies showing signs of distress

THE number of Scottish ­ companies struggling to survive has risen sharply, in contrast to a fall in the UK as a whole, a survey has revealed.

The report, by business rescue and recovery specialist Begbies Traynor, shows instances of critical distress in the three months to June were up 22 per cent on the same quarter of last year at 145.

This was in stark contrast to a year-on-year drop of nine per cent in the UK as a whole.

Firms are viewed as showing signs of critical distress if they have decrees against them totalling more than £5,000 within a three-month period, are the subject of winding-up petitions, or if they have entered company voluntary arrangements to pay creditors.

The number of instances is the total number of decrees, petitions and CVAs.

The survey highlights the continuing difficulties being faced by companies north of the Border, even though Scottish economic output is at last back above its pre-recession peak.

Figures published on Wednesday by the Scottish Government showed gross domestic product (GDP) north of the Border surged by one per cent quarter-on-quarter in the opening three months of 2014.

This rise meant GDP in the January to March period was 0.4 per cent greater than its level in the second quarter of 2008, ahead of the recession. UK GDP rose by 0.8 per cent in the first quarter, to be 0.6 per cent adrift of its pre-recession peak.

The Begbies Traynor survey highlights a rise in critical distress among companies in the construction and retail sectors. But it signals an easing of troubles for bars, restaurants and hotels.

The number of instances of critical distress among Scottish companies in the second quarter was up seven per cent on the preceding three months, in contrast to a 10 per cent fall UK-wide.

Asked why Scotland might be faring worse than other parts of the UK, Ken Pattullo, group managing partner in Scotland for Begbies Traynor, replied: "It is kind of a difficult one.

"According to some statistics, the Scottish economy is outperforming the rest of the UK."

He believed the contrasting positions might partly reflect companies south of the Border and overseas delaying decisions about investing in Scotland ahead of the independence poll in September.

The survey shows the number of instances of significant distress among Scottish companies, indicating the early signs of financial troubles, was, at 12,655 in the second quarter, up by 31 per cent on the same period of last year.

This rise was less sharp than a 34 per cent increase in the UK as a whole.

Firms are judged to be showing significant distress if they have a court action against them, or have poor or out-of-date accounts.

Mr Pattullo said: "We're concerned that in Scotland both levels of significant distress and critical distress have continued to show a marked increase year-on-year, leading us to believe there may be more problems to come and the corporate picture for the country is not as rosy as we had hoped."

Calling for tight cost control, he added: "The recovery phase is a notoriously dangerous time for SMEs [small and medium-sized enterprises] who have had their savings depleted during the recession and may be tempted to overtrade during the upturn, leading to cash flow problems."

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