The furlough scheme ended in September 2021 and from then on, creditors were once more able to issue Winding Up Petitions to recover outstanding debts. The last of the UK government’s extraordinary £300bn plus Coronavirus support for businesses was finally withdrawn at the end of March 2022, when landlords could once more enforce rent arrears (with some minor exceptions).

So how have Scottish businesses fared now that this safety net has been taken away and as rampant inflation, supply chain disruption in China and the Russian invasion of Ukraine has thrown all the commercial balls in the air yet again?

Scottish business insolvencies since 2021

The final quarter of 2021 saw the highest number of corporate insolvencies (263) in Scotland since the first quarter of 2019. It was also the largest number in a fourth quarter since the dark days after the global financial crisis in 2008/9. Scottish insolvencies are now just a little higher than immediately pre-pandemic – up by 2% on Q4 2019.

What is very noticeable is that the great majority (77%) of Scottish business failures in Q4 2021 were Creditors Voluntary Liquidations, where the Directors of companies themselves took the initiative to stop trading, as opposed to creditors taking enforcement action. Given the unprecedented turmoil entrepreneurs have been through in the past two years, it is hardly surprising that some are calling it a day.

UK and world business

What about the rest of the UK and other parts of the world? Opus has recently carried out research for the BBC World Service looking to identify global business insolvency trends. All of the major economies are still seeing company failures very significantly below pre-pandemic levels – except the UK, which is a very obvious outlier. The USA and Australia are still 45% lower, France is 40% down, Germany 32% and Japan 30%.  The full details of the research are here. The link to the BBC World Programme on this issue is here.

The UK is only 2% below pre-pandemic in Q4 2021. Why would that be? There are four obvious answers:

• Key sectors like hospitality and retail went into the crisis with deeply vulnerable finances.
• The £76bn of government-backed loans remain repayable in full – unlike in the USA and Europe, where most similar support has been turned into non-repayable grants or subsidies.
• Small businesses have taken on huge amounts of extra debt, mainly Bounce Back Loans. Opus research shows that the debts of small companies in sectors such as hospitality, retail and food manufacture are now between two and three times pre-pandemic levels.
• Whatever side of the ongoing political debate people are on and despite the uncertainty from the endless manipulation of financial data, it cannot have been a positive move by any sensible judgement to abandon normal arrangements with our largest trading partner nine months into a once-in-a-century crisis.

What next for Scottish business?

UK GDP has stalled, and a recession is likely later this year; interest rates are on the rise and all the ongoing cost inflation, labour shortages and supply chain chaos continues with no end immediately in sight. No wonder that the global trade insurer, Atradius has just predicted that UK insolvencies will soar by 37% in 2022 to levels last seen after the global financial crisis over a decade ago.

It is a time for cool heads, maximum commercial flexibility and prioritisation of cash generation and conservation as the key drivers for business success as well as survival. This is going to be an extended period where the default position for Scottish business owners needs to be risk averse.