Over 500,000 businesses are in severe financial distress, new research shows

Newly published research from Begbies Traynor has found that 527,000 businesses are in significant financial distress, representing a considerable increase of 7 per cent since the start of the year, and 9 per cent year on year.

The firm confirmed the number could have been much higher were it not for reduced court activity due to the coronavirus pandemic, which has substantially reduced the number of CCJs and winding up petitions being taken against indebted companies.

According to Begbies Traynor’s own data, there were 18,107 CCJs lodged against companies during March, April and May in 2019, with only 10,766 lodged in the same period during 2020, a fall of more than 40 per cent.

The situation is even more profound with regard to the more serious winding up petitions. During March, April and May 2019, 926 were lodged, compared with 247 during the same period in 2020, a fall of 73 per cent.

“The latest figures from our Red Flag Alert research show that there is a dam of company financial distress waiting to break upon the UK economy. Despite more than 30,000 businesses having fallen into distress since the start of the year, the real level of corporate underperformance is being concealed by inaction on distressed businesses in the courts," Julie Palmer, partner at Begbies Traynor, explained.

She warned that with government initiatives to support businesses now winding down, the UK will start to see the true impact of coronavirus on the UK during the autumn.

"This crisis will force many zombie companies out of business. While these were clinging on to survival prior to the pandemic, many will now have become simply unviable due to high levels of debts and poor sales," said Ms Palmer.

"Going forward, businesses that have the capital and the management ability will adapt to the new normal and likely flourish at the expense of weaker rivals.

“It is likely that this situation will get worse for many businesses before it gets better, but those that can operate and adapt to these conditions will survive the flood and live to prosper on the other side.”