Scottish arts organisations facing financial distress

It’s a challenging and turbulent time for Scotland’s creative industries.

Last September, Creative Scotland – the public funding body for the arts and creative industries in Scotland – warned the Scottish Parliament of a serious risk of insolvency for up to a third of Scottish arts organisations. 

In December, as part of the Holyrood autumn budget, the Scottish Government increased its culture and heritage funding by £15.8m. This pledge forms part of a five-year plan which will see at least £100m invested in arts and culture by 2028-2029. The increase in funding restores £6.6m to Creative Scotland following the controversial cuts which were made to its allocated budget in the 2023/24 financial year. 

However, between increased operating costs, rising interest rates, and the cost-of-living crisis, organisations in the creative arts sector have serious questions over whether the recent increase in funding is enough to overcome the significant and prolonged challenges the industry has been facing. 

Campaign for the Arts released a statement saying that while “it’s a relief the Scottish Government has restored its £6.6m cut to Creative Scotland and recommitted this funding for next year… next year’s overall culture budget will be 6% smaller than in 2022-23 in real terms. Once the cuts to Creative Scotland have been remedied, there is only £2.6m of new cultural investment… Amid a perfect storm of challenges for artists and organisations, the Scottish Government needs to go much further, much faster.” 

What does this mean for Scotland? 

From Celtic music to the world’s largest arts festival, the arts are embedded in Scottish culture and daily life. The creative industries also contribute more than £5bn to the Scottish economy each year. 

However, despite the industry’s significant economic contribution, Creative Scotland has been voicing concerns over financial challenges for some time. Prior to the funding cuts for 2023/24, it announced that 900 jobs were at risk and that more than 12,000 freelancers were facing a loss of financial support. Any increased insolvency risk therefore has potentially far-reaching economic, social and cultural consequences. 

What options do arts organisations have?

For any arts organisation facing financial distress, understanding your options and reacting quickly is key.  Based on our extensive experience of working with such organisations, these are my top tips:

•    Developing a plan: This is critical to preparing for the future. Identifying the key issues you face as an organisation means you can prioritise and address them effectively. 
•    Financial information: Ensure your financial information is robust, up-to-date and monitored regularly. It’s important for leaders and managers to fully understand their organisation’s financial status and be positioned to identify any cash flow pressures. 
•    Enhance cash flow: When cash is under pressure, you need to consider whether there are any measures that can be taken to enhance cash flow. These may include restricting discretionary spend, negotiating with suppliers for extended payment terms, or billing clients upfront rather than at the end of a long and complex creative project.
•    Additional funding options: You may need to explore options for additional funding. This could include, for example, grant funding or taking measures to attract public fundraising. If your organisation relies on public donations, make the donation process as straightforward as possible, such as by accepting contactless payments.
•    Clear and transparent communication: Using clear and transparent communications with key stakeholders can be helpful in finding consensual solutions. Having up-to-date financial information and sensible proposals will assist with these conversations.
•    Compliance with statutory duties: Trustees and directors of organisations must be mindful of their duties. If your business is bordering on insolvency, company directors owe a duty to ensure the interests of the company’s creditors are protected. A breach of duty can lead to a director incurring personal liability. If you are concerned, seek legal advice from a restructuring professional to help navigate these risks. 

Forewarned is forearmed

The earlier you take steps to address financial challenges, the more options are likely to be available to you and the greater your chances of success. 

Many cultural organisations in Scotland are feeling overwhelmed by current challenges but seeking professional restructuring advice can be invaluable. It can help you prepare and implement a restructure or turnaround and, perhaps more importantly, mitigate the risks of personal liability for your trustees and directors.

Fiona McKerrell is a Partner, Carissa Najafian is a Trainee Solicitor and Kirsty Fryer is a Solicitor at law firm Shepherd and Wedderburn in Scotland.
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If you have any questions or would like to find out more about our restructuring expertise, please get in touch on Fiona.McKerrell@shepwedd.com or 014 1566 7260.