Written by: Keith Tully
The number of UK companies in positions of ‘significant financial distress’ were up 24 per cent at the end of the June 2021, as compared to the same point of last year.
The latest figures suggest that there were around 650,000 companies in that position of serious financial precarity at the end of the second quarter of the year, which is the second highest figure on record.
However, those numbers represent a drop of around 10 per cent from the first quarter of 2021, when closer to 723,000 businesses were in significant financial distress.
The coronavirus pandemic has clearly had a huge impact on the economy and on the financial realities being faced by millions of companies across the country.
Many have been protected from their creditors by a moratorium on legal actions and winding up petitions but hundreds of thousands of companies are nonetheless understood to be operating in close proximity to positions of insolvency.
Indeed, Begbies Traynor, the corporate insolvency experts who compiled the latest figures, is convinced that the pandemic has prompted a very sharp increase in the number of businesses that are still operating but which are effectively running out of road.
Court actions against debtor companies have been at very low levels in recent quarters but that activity is understood to be picking up as some creditors begin to pursue more aggressive tactics in chasing their debts.
Julie Palmer from Begbies Traynor has explained that large numbers of companies took on debts via government-backed schemes during the pandemic and many are now finding it extremely difficult to even start repaying what debts they owe.
The reopening of the British economy in recent weeks has brought with it some positive economic news but Begbies Traynor’s latest Red Flag Alert figures clearly show that many thousands of firms are still facing a real struggle for survival.
“Whilst ‘Freedom Day’ on 19th July has given many businesses a sense or normality, history suggests that unmanageable levels of debts and subsequent overtrading will eventually take their toll on these businesses,” commented Ms Palmer.
“Yet, the last quarter has demonstrated that it is not all doom and gloom for businesses. Consumers want to spend, businesses want to expand and adaptation provides an opportunity for fresh shoots in the economy.”
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