Written by: Keith Tully
More than 700,000 businesses in the UK are thought to have been in a position ‘significant financial distress’ during the first three months of 2021.
That’s according to the latest figures from the Red Flag Alert reports put together on behalf of the corporate insolvency experts of Begbies Traynor.
Almost 100,000 extra businesses, 93,000 to be more precise, are understood to have newly entered the position of significant financial distress over the course of Q1 2021.
That leap in the number of companies in that position is the steepest recorded since the same methods of data gathering were introduced for the Red Flag Alert reports in 2014.
On a quarterly basis, the increase in companies in significant distress jumped by 15 per cent, while on a year-to-year comparison the difference is close to 42 per cent.
The numbers suggest that there were roughly 213,000 extra businesses in significant financial distress at the end of March 2021 as compared to the same point a year earlier.
Each of the 22 industry sectors considered by the Red Flag Alert data showed an increase in financial distress levels, with 19 of those sectors having seen double-digit increases in distress already in 2021.
The view among Begbies Traynor’s experts is that corporate insolvency levels have been “artificially suppressed” in recent quarters because of various factors relating to the pandemic.
In particular, court actions which might otherwise have happened at an earlier juncture have been delayed in many cases, which has led to businesses being left to continue operating while effectively being insolvent.
“The dam of zombie businesses could be about to break,” said Julie Palmer, a partner at Begbies Traynor.
Ms Palmer has said that while many businesses being able to reopen from April 12 has rightly been welcomed as a positive step forward for the country, many companies will still be facing extremely tough financials situations.
“Our experience shows that unmanageable levels of debts and subsequent overtrading are likely to be the hidden icebergs waiting to sink even the highest profile businesses,” she said in a statement.
Ms Palmer from Begbies Traynor has also said that many businesses will be able to navigate the next few months successfully but to do so they will need expert guidance and they will need to act quickly when opportunities open up for them.
“In a market that is moving fast dithering companies will be swept away in the sheer force of distress that is forcing its way across the UK,” she said.