A wave of insolvencies is set to hit British businesses, as Covid reliefs that had been propping up struggling companies through the pandemic start to unwind.
According to corporate restructuring specialist Begbies Traynor, 589,168 businesses in the UK reported significant financial distress in the last quarter of 2021, a five per cent increase on the previous three months.
Many believe that government support provided through the pandemic has delayed insolvencies, in particular for businesses that were already struggling prior to Covid-19. Now, the end of relief packages combined with a rise in inflation, is going to create additional pressure for many businesses, driving insolvency rates higher, according to Julie Palmer, partner at Begbies Traynor.
Companies in support services and construction are particularly vulnerable. For the latter, there is evidence of overtrading, with cashflow issues now impacting businesses, Palmer noted.
“Businesses that have bravely battled through the pandemic could now start to fail as the pressures they face become too much,” Palmer added.
“Support from the government such as furlough payments, tax reliefs and a moratorium on landlords being able to evict businesses due to rent arrears cannot go on forever. Without these measures in place to protect them, a rising number of companies will have no other option but to relinquish their business after two years of struggling on in the economic uncertainty that has been tempered by measures to combat the impact of coronavirus.”
In addition, there is a 106 per cent rise in County Court Judgements, which can be a key early sign of future insolvencies as it shows that creditors are actively using courts to recover debts.
“Aggressive creditor action is often seen as a leading indicator for insolvencies, and the 100 per cent+ increase in CCJs demonstrates that companies are taking a tougher line on recovering debts, in many cases to ensure their own survival,” said Ric Traynor, executive chairman.
The situation is even worse for companies already on the brink of failure, with critical financial distress up seven per cent year-on-year in the fourth quarter.
|Top 10 Distressed Sectors|
|Real Estate & Property Services||75,052|
|Telecommunications & IT||38,006|
|Health & Education||32,583|
|Bars & Restaurants||20,846|