Sharp Rise of Companies in Financial Difficulty
19% rise in Companies in critical financial distress
Insolvency firm Begbies Traynor has reported a 19% rise in Companies in critical financial distress for the first 3 months of 2022, driven mainly by insolvencies in the construction and the hospitality sectors (bars and restaurants).
Research conducted by the Insolvency specialist has found that 1,891 firms were now in severe financial distress for the first quarter of the year, a fifth higher than for the same period of 2021.
Businesses in significant financial distress are down 20% on the level a year ago at 581,596, though this is flat on the previous quarter.
County Court Judgments – a warning sign of future insolvencies are up 157% to 22,552 in the quarter compared with a year ago; with March having seen the highest number in a single month for five year.
The data points to a forthcoming wave of business failures as the economy adjusts to the post-pandemic reality with Covid reliefs cut off and rapid growth in inflation.
The latest Begbies Traynor “Red Flag Alert” research, which has examined the financial health of British companies for the past 15 years, highlights the strain two years of extraordinary financial pressures have had on thousands of UK companies.
Julie Palmer, partner at Begbies Traynor, warned that unless there is action to allow struggling businesses to mitigate the impact of these pressures, they risk being unable to continue to operate.
“The critical distress and CCJ data are likely predictors of a wave of insolvencies coming – it’s just a case of when the dam holding it back finally bursts.
The latest Government insolvency figures for March reinforce this worrying trend with creditors voluntary liquidations – the most common type of corporate insolvency – more than doubling compared to March 2021 and up 62% compared to March 2019
“The Government’s finances are themselves taking a hit from the increasing interest environment; they are simply not able to introduce further significant funding into the system, and they now have a choice to make. Do they rush to recover funds handed out during the pandemic to ensure there was a functioning economy afterwards? Or look for ways to control the number of businesses that fail?
“Having put so much money into protecting businesses over the past two years, ministers won’t want to see it wasted as companies collapse, unable to repay their debts.”
Ms Palmer said one way the Government could ease the pressure on embattled businesses while not writing off debts racked up through measures such as the Coronavirus Business Interruption Loan Scheme (CBILS) would be taking a longer-term view.
