557,000 UK businesses now in significant distress as numbers soar
Over the last three months, the number of companies in distress has reached a new record with those under significant distress numbering up to 557,000, new research has shown.
According to Begbies Traynor’s latest Red Flag Alert research, Q3 2020 recorded 557,000 businesses in ‘significant distress’, a 6 per cent rise from 527,000 the previous quarter.
This newly published research also found that there has been a 9 per cent increase in significantly distressed companies since the end of the first quarter when this number stood at 509,000.
The analysis shows that in this period, financial distress has increased by double-digits in 10 out 22 sectors analysed. This includes food and drug retailers, construction and real estate and property sectors.
“It is noteworthy that the number of businesses in significant distress have grown substantially in the last three months, even with court capacity significantly reduced due to the pandemic,” said Julie Palmer, partner at Begbies Traynor.
“With so many businesses limping along there could be a flood of insolvencies when the courts do get back to anywhere near normal capacity and attempt to clear the backlog of pending cases.”
This in itself, combined with the end of the furlough scheme and other government support measures, is likely to have a material impact on the UK business failure rate, Ms Palmer opined.
“Unfortunately for the many zombie companies in existence across the UK, a perfect storm is on the horizon,” she added.
“A combination of a grim economic data, and very poor trading conditions, particularly in the most vulnerable sectors, such as hospitality will take its toll and this is expected to feed through to Q1 2021, particularly when the government ends its high profile corporate life support measures.”
Official government data shows there were 26,244 CCJs lodged against companies during March, April and May in 2019, with only 10,045 lodged during the same period in 2020, a fall of 62 per cent.
The situation with regard to winding up petitions is even more serious. During July, August and September 2019, 1,019 were lodged compared with 101 during the same period in 2020, a fall of 90 per cent.