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Insolvency Storm Forecast as Creditors Step Up Their Pursuit of Indebted Companies

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The coming months could see something of an “insolvency storm” hitting the UK as creditors intensify their pursuit of debts they’re owed with the support of relevant legal mechanisms.

That prediction comes from the insolvency experts of Begbies Traynor, whose recent research suggests there were close to 600,000 businesses in significant financial distress in the final quarter of 2021.

The number of companies in distress is believed to be rising and so too is the number of County Court Judgements (CCJs) being issued against struggling businesses.

Indeed, Begbies Traynor is taking the 106 per cent jump in CCJ numbers in Q4 2021 as a clear indication that corporate insolvency rates are set to increase.

Factors contributing to the creation of an environment in which more corporate insolvencies appear inevitable include the rolling back of Coronavirus-related financial support schemes and the removal of legal protections for indebted firms.

According to the latest Red Flag Alert figures from Begbies Traynor, businesses from within almost all industry sectors felt the financial pressures on them increasing during the final few months of last year.

Notably, the number of companies in a position of critical financial distress were up 7 per cent in the fourth quarter of 2021 compared to the same period in the year before.

“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,” explained Julie Palmer, a partner at Begbies Traynor.

“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.”

Ms Palmer has also cited rising inflation as a major problem facing businesses across the country, with construction sector operators likely to be among those most badly impacted by rising prices.

On the plus side, potentially, the Begbies Traynor partner has noted that anecdotal evidence suggests HMRC might currently be rather more flexible if companies cannot pay their tax bills than would ordinarily be the case.

“We are hearing stories about HMRC giving companies two or even three years to pay their tax bills,” says Ms Palmer. “Extra leniency may not be an official policy, but it sends a signal that officials are trying to help businesses survive.”

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