630,000 UK businesses now in significant financial distress since new lockdown came into effect
22nd February 2021
This article was first published by Begbies Traynor.
630,000 businesses now in ‘significant distress1', a 13% increase from Q3 2020 to Q4 2020 (largest numerical quarterly increase since Q2 2017)
27% year-on-year increase in ‘significant distress1' (136,000 businesses) since Q4 2019
Financial distress increases across all 22 sectors monitored by this research
London experiences a 33% increase in significant financial distress since Q4 2019
The latest Red Flag Alert research for Q4 2020 has recorded 630,000 businesses in ‘significant distress1' after the largest numerical quarterly leap (73,000) in financially distressed companies since Q2 2017. This 13% increase (from 557,000 in Q3 2020) comes as the UK is plunged into another nationwide lockdown.
This newly published research from Begbies Traynor also found that there has been a 27% increase in significantly distressed companies since Q4 2019 (494,000 - Q4 2019, 630,000 - Q4 2020) with financial services increasing by 38% (12,587 - Q4 2019, 17,423 - Q4 2020), real estate and property services increasing by 39% (53,224 - Q4 2019, 73,952 - Q4 2020) and hotels and accommodation increasing by 32% (5,659 - Q4 2019, 7,494 - Q4 2020).
Every one of the 22 sectors monitored by the Red Flag Alert research exhibited an increase in significant distress, with 18 sectors experiencing double digit increases in the final quarter of 2020 - a worrying sign for the UK economy. This highlights the deteriorating financial situation for many companies.
Tip of the Iceberg
However, it is likely that these figures are the tip of a very large iceberg. The coronavirus pandemic has reduced court activity limiting the number of CCJs and winding up petitions being issued against indebted companies and there has been a ban on winding up petitions for Covid-related debts.
Data shows there were 14,030 CCJs lodged against companies during October, November and December in 2019, with only 9,716 lodged during the same period in 2020, a fall of 31%. The situation is even more acute with regard to more serious winding up petitions. During October, November and December 2019, 644 were lodged compared to just 94 during the same period in 2020, a fall of 85%. Additionally, the average value of judgements has more than doubled from £2,790 in Q3 2019 to £5,844 in Q3 2020, with the median value up 153 percent from £902 to £2,280, showing that larger judgements are still be actioned compared to smaller judgements.
Julie Palmer, Partner at Begbies Traynor, said:
"These figures give an insight into some of the financial stresses that have been building in UK business. Without the financial aid and support measures that the Government has put in place during the pandemic insolvency levels would have been much higher, however the sad truth is that for many companies this will provide little more than a stay of execution as debt levels become unmanageable and structural changes across many sectors take their toll.
"The announcement of the latest national lockdown will do little to help and even the chancellor has reiterated that he cannot save every business. And the harsh reality is that the Government will have to be ruthless when handing out rescue funds, because not all businesses will be sustainable, even when the flood waters subside.
"Although the Government has extended its Covid-19 financial support, this simply won't be enough for thousands of businesses who likely will not survive in the interim. Although the UK's announcement of a trade deal with the EU and the roll-out of Covid-19 vaccines offer some light at the end of a very dark tunnel, the situation is going to remain bleak over the next quarter and beyond."
Read the full article HERE
Author Julie Palmer - Regional Managing Partner
Begbies Traynor web site - www.begbies-traynorgroup.com/