Law and finance firms face big risk of collapse

NEARLY one-third of professional services firms in Scotland are still considered to be at a heightened risk of insolvency, underlining fears expressed ahead of the EU referendum in June that a Brexit vote would have a damaging effect on the sector.

Fears that the uncertainty ushered in by the Brexit vote and subsequent collapse of sterling were cited as research suggested that 30.7 per cent of law firms and accountants are facing a higher than normal risk of insolvency.

Muted economic growth was also found to have slowed demand for professional services in the last quarter.

R3, the body for the insolvency industry, said the number of Scottish professional services firms facing a higher than normal risk of hitting financial problems was down 2.1 per cent on the previous quarter.

Tim Cooper, chairman of R3 and a partner at law firm HBJ Gateley in Edinburgh, noted that, while the “marginal” decline was welcome, it still leaves a “high proportion” of firms facing a high risk of insolvency.

“My view is that a 30 per cent risk of entering insolvency in the next 12 months is still very much a higher than normal risk,” he said. “That’s suggesting nearly a third of professional services firms maybe exhibiting a higher than normal risk of insolvency.

“The current climate doesn’t do anything to mitigate those concerns – it exacerbates the risk. It is not a great time for professional services.”

Mr Cooper noted that the collapse in sterling since the Brexit vote has put pressure on firms with clients which are exposed to fluctuations in currency exchange rates. That can manifest itself in clients taking longer to pay bills.

Other factors putting pressure on firms include lessening demand for professional services from clients exposed to sectors where activity is slowing down.

Mr Cooper observed that the continuing impasse which has followed the vote to leave the EU serves to “accentuate the risk across the economy generally”.

And he expressed the view that political uncertainty has become the “new norm” for businesses, highlighting that the prospect of a further referendum on Scottish independence will also reduce certainty. He noted, however, that future restrictions on the rights of EU citizens to work in the UK after Brexit would not have a particular effect in sectors such as law, which demand staff are qualified to work under local jurisdictions.

R3, whose survey is based on data from more than 2,000 Scottish firms, found the number of professional firms at a heightened risk of insolvency in Scotland was broadly similar to the UK as a whole (32.6 per cent). But it was less than in London, where 36.1 per cent of professional services firms were said to be at a heightened risk of insolvency. London and Scotland both voted decisively to remain in the EU in the June referendum.

Mr Cooper said: “This is something that should be closely monitored. Any business in the professional services sector should really be paying close attention and working out their contingency plans [and] what they do to mitigate those risks.”

Go to Source