Listed Companies at Risk of Insolvency ‘Has Doubled in 12 Months’

The number of listed companies in the UK at risk of insolvency has doubled over the course of the past 12 months.

That’s according to the assessments of the professional services and consultancy firm EY, which has noted that a record 35 per cent of quoted companies issued profit warnings at some point in 2020.

Those figures equate to 583 profit warnings in total, with 62 listed companies having to issue three consecutive profit warnings last year.

Among the listed firms being hit hardest by the realities of the pandemic were retailers, of which some 72 per cent of those in the FTSE issued profit warnings in 2020.

According to EY’s analysis, one in five listed companies that issues three or more profit warnings in the space of a year will end up entering administration within 12 months of issuing their third warning.

On that basis, estimates suggest that around 20 per cent of the 62 companies to have issued three profit warnings last year could soon find themselves in administration.

Back in 2019, the number of listed firms in the somewhat perilous position of having issued three profit warnings in a year totalled 32, which was very similar to the figure of 31 recorded the previous year.

The previous high watermark for listed companies issuing profit warnings was recorded in 2001, when 506 such warnings were issued, which is around 15 per cent lower than the figure for 2020.

Despite the frequency with which UK companies were warning of lower than expected profits last year, rates of corporate insolvency remained remarkably low, which EY’s experts have suggested could soon change.

“Insolvencies in the UK haven’t been dodged, they’ve been deferred and we’re likely to see an influx of these from spring onwards,” said Alan Hudson, an EY-Parthenon partner and turnaround and restructuring specialist.

“For businesses that avoid administration, the mission ahead is immense, but not insurmountable,” he said.

Mr Hudson highlighted the role that emergency government and bank support measures have played in keeping companies in business since the start of the pandemic.

“When this support falls away, cash reserves may deplete rapidly,” he said, adding “the return of staff, paying rent and rates,” and servicing “much higher levels of debt,” will likely put companies under significant financial pressures in the coming months.