650,000 UK Companies in ‘Significant Financial Distress’
There were estimated to be around 650,000 companies across the UK in ‘significant financial distress’ during the second quarter of 2021.
Those figures represent a 24 per cent increase compared to the same period in 2020 but a 10 per cent decrease compared to the first three months of this year.
With the economy having opened up gradually over the course of recent months in line with Covid-19 protocols, there are clearly huge numbers of companies still struggling to manage their cashflows and to stay in business.
The data on levels of financial distress among UK companies comes from the corporate insolvency specialists at Begbies Traynor and its Red Flag Alert report, which says the opening up of the economy has seen some businesses making new arrangements with their creditors and paying down some of their debts.
However, it is clear from the latest figures that large numbers of companies will be struggling to pay off what debts they owe in the coming months.
A record-setting 723,000 businesses were significantly distressed financially in Q1 2021 but those numbers have fallen back at least somewhat more recently.
Many companies have effectively been protected from creditor action by a moratorium on court actions during the pandemic but those activities are beginning to pick up and some creditors are becoming more aggressive in how they chase their debts.
A total of 14,460 businesses are understood to have been on the receiving end of County Court Judgements (CCJs) during the second quarter of this year, which represents a 90 per cent uplift compared to the same period in 2020.
According to Julie Palmer, a partner at Begbies Traynor, there are large numbers of businesses continuing to operate despite being in deeply perilous and ultimately unsustainable financial positions.
She has said that the pandemic has contributed to creating a situation in which companies find themselves both heavily indebted and struggling to generate enough cashflows to start making repayments.
“Covid has dramatically accelerated the UK’s zombie business population with many businesses taking on unsustainable government-backed debts during the pandemic in order to survive,” Ms Palmer explains.
“With constant changes to the UK roadmap out of lockdown, many remain in a precarious position, with any future lockdowns likely to impact insolvency rates,” she added.