In the last quarter of 2011 there was a 17% increase in the number of companies facing 'critical' financial distress in Scotland, according to a new Red Flag Alert from Begbies Traynor.

The business recovery firm reports that, across the UK, there has been a 24% year on year increase in the number of firms in critical financial distress. The professional services sector has been worst hit, with a 61% increase.

“Trends evident in the Red Flag Alert demonstrate that we are likely to be approaching a crucial period for businesses large and small," said Ric Traynor, executive chairman of Begbies Traynor Group. "Escalating levels of distress indicate we may be getting close to the bottom of the economic  cycle, where so called ‘zombie” businesses, which are inherently insolvent, but have benefited from extensive support measures such as HMRC’s ‘Time to Pay’ scheme, eventually fail."