Covid rules, lacklustre festive season trading, overdue rent and other accumulated debt will likely see a wave of businesses going bust early this year, a leading lawyer has warned.
Euan McSherry, Aberdeen-based partner and head of dispute resolution at Aberdein Considine, said legal teams around Scotland were recruiting in advance of an expected “tidal wave of insolvencies”.
This was meant to be a time businesses could make lots of money.”
Euan McSherry, Aberdein Considine.
Many businesses had hoped a good Christmas would bring in cash to repay landlords in the wake of deals that were struck to help them survive the coronavirus lockdowns, Mr McSherry said.
But Covid restrictions introduced at the end of last month and ongoing consumer nerves about exposure to the Omicron variant could be the final straw, he warned.
Businesses are also facing looming repayment deadlines for Covid support grants, as well as a “delayed” impact from the end of the UK Government’s furloughing scheme, he said.
‘Difficult conversations’ ahead
Landlords who have been “more than willing” to work with tenants to help them through the Covid crisis may soon be facing “difficult conversations” about overdue rent, he added.
Mr McSherry said it may all add up to a major pressure point around the time of quarterly rent due at the end of February.
"𝐁𝐮𝐬𝐢𝐧𝐞𝐬𝐬𝐞𝐬 𝐡𝐚𝐯𝐞 𝐝𝐨𝐧𝐞 𝐞𝐯𝐞𝐫𝐲𝐭𝐡𝐢𝐧𝐠 𝐚𝐬𝐤𝐞𝐝 𝐨𝐟 𝐭𝐡𝐞𝐦 𝐚𝐧𝐝 𝐦𝐨𝐫𝐞. 𝐀𝐬 𝐡𝐚𝐬 𝐭𝐡𝐞 𝐠𝐞𝐧𝐞𝐫𝐚𝐥 𝐩𝐮𝐛𝐥𝐢𝐜… 𝐲𝐞𝐭 𝐬𝐭𝐢𝐥𝐥 𝐢𝐭 𝐬𝐞𝐞𝐦𝐬 𝐧𝐨𝐭 𝐭𝐨 𝐛𝐞 𝐞𝐧𝐨𝐮𝐠𝐡."https://t.co/VepbaVx36r
— chambertalk (@chambertalk) December 21, 2021
Many firms are fast running out of cash, the lawyer warned, adding: “This current period doesn’t exist in isolation.
“It has to be looked at in relation to discussions that have been taking place throughout the pandemic.
“The vast majority of those will have resulted in an agreement dealing with past rent that was due.
“The festive period is very important for cash.
“Conversations that are now going to be had are looking likely to be those where tenants have to give a commitment to making payments in full, or make repayments.”
Many businesses were hoping for a great festive period to get back on track.”
Describing one of his own clients with their “head in their hands” as typical, Mr McSherry said: “This was meant to be a time businesses could make lots of money.
“Many of them had agreed to make (rent) overpayments over the Christmas period.”
“And a lack of confidence among consumers – people are concerned about going out – is only going to lead to a further drop in revenue.”
Firms’ past borrowing to stay afloat during the crisis has seen the “can” of debt and other financial woes getting “kicked down the road” at many firms, Mr McSherry said.
Salary woe looms for some firms
He added: “Every single insolvency firm has been recruiting for a tidal wave of work.”
Businesses will struggle to pay salaries, he warned, adding: “The money is just not there and there is nowhere to go to borrow more.
“If you have taken out a Covid loan and don’t have the benefit of furloughing anymore, then you are in a difficult place.
“This will, inevitably, create pressure on your cash flow and you are unlikely to be able to secure additional finance from your bank.
“Many businesses were hoping for a great festive period to get back on track – take that away and it’s a very different commercial environment.”
Mr McSherry’s comments follow hot-on-the heels of survey findings from industry body UKHospitality showing a slump in takings over a key weekend before Christmas.
Businesses have done everything asked of them and more.”
Russell Borthwick, chief executive, Aberdeen and Grampian Chamber of Commerce.
Aberdeen and Grampian Chamber of Commerce chief executive Russell Borthwick has been highly critical of government public health policy in recent weeks.
Responding to Mr McSherry’s comments, Mr Borthwick said: “Whole sectors of our business community, not just hospitality but hotels, entertainment and sports venues, office services firms and transport providers, to name just a few, are being forced to take the brunt.
“Businesses have done everything asked of them and more, as has the general public, yet still it seems not to be enough.”
The chamber chief added: “Companies across Scotland have already lost billions of pounds in trade due to the return of restrictions from mid-December, with no clarity around when they will be lifted, threatening the survival of many and unnecessarily putting at risk tens of thousands of jobs.”