By Ian McConnell

Scottish business failures in the first quarter were down by 63% on the same period last year, official figures show, but one expert described the situation as one of “suspended animation” and warned of worse to come.

The Accountant in Bankruptcy said yesterday that the number of corporate insolvencies in the January to March period totalled 91, down from 246 in the first quarter of 2020 and from 133 in the final three months of last year.

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Tim Cooper, who chairs insolvency trade body R3 in Scotland, said: “The first quarter of 2021 in Scotland was spent in lockdown, with the majority of the population under the strictest rules, and Scotland’s overall economic performance is forecast to have reflected those conditions, with a predicted GDP fall of over 5%.

"Yet we are still seeing levels of corporate and personal insolvencies which are far below where they were this time last year, and even below where they were in the previous quarter, in a form of suspended animation. This cannot last forever, though, and it is clear that there are many businesses whose entire operating model has been holed below the waterline by the pandemic – at some point, they are very likely to sink.”

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He added: "“The first quarter of 2020 was the last time that economic activity – and life in general – was anything like ‘normal’, for the most part. The operation of the courts, which are required for many types of insolvency procedure, has been severely curtailed for over a year now, which has limited the number of insolvencies which can proceed.

“Another crucial reason for lower-than-expected levels of insolvency is the direct and indirect support that has been provided to businesses and individuals, from straight cash transfers, such as the furlough scheme, to less visible but just as important interventions, like the ban on commercial evictions.

“However, we now have end points in sight for all of these support mechanisms, meaning that many company directors have some serious planning to do if they want to be able to meet their financial obligations over the coming year. This will be an especially acute point for any companies which have taken on Covid-related government loans, with repayments starting a year after they were first taken out – which will be right about now for many businesses."