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Dam of Zombie Businesses ‘About to Break,’ Says Insolvency Expert

By Jon Munnery
23 April 2021

The dam preventing insolvent companies in the UK from heading out of business could be about to break, according to a leading corporate finance expert.

Julie Palmer, a partner at the corporate insolvency firm Begbies Traynor, has suggested that there are significantly more businesses in financial distress currently than is reflected in the number of enterprises officially entering insolvency or liquidation.

The financial support and protections afforded to companies by government over the course of the pandemic has helped them stay afloat in most cases but, nonetheless, serious financial difficulties are clearly in evidence.

Indeed, the latest figures from Begbies Traynor suggest that there were around 723,000 UK companies in a position significant financial distress as of the first quarter of 2021.

Those figures represent an increase of around 93,000 as compared to the previous quarter, and a 42 per cent jump compared to the same period of 2020.

In addition to the various levers of support deployed by government to help keep businesses afloat, many have remained operable partly because court processes have been so badly delayed for practical reasons since the pandemic began.

Under normal circumstances, courts would have processed far more winding up petitions and judgments against heavily indebted companies than has been possible over the past year.

All of which has led Ms Palmer from Begbies Traynor to conclude that the coming months will see a significant increase in the number of indebted businesses becoming insolvent and potentially entering liquidation.

“The last 12 months have undoubtedly been some of the hardest that many businesses have ever encountered,” she said.

“We must remember that this is no ordinary recession and while businesses have had significant assistance from central government, large parts of the economy have been put on hold with substantially reduced revenues.”

Ms Palmer added that while the opportunity to reopen as Covid restrictions ease is obviously positive news for a lot of businesses, many will still be operating with unmanageable debts and facing huge financial challenges.

Even companies that have manageable debts will need support and guidance to cope well with the realities of operating in the context of an economy emerging from an unprecedented downturn.

“In a market that is moving fast dithering companies will be swept away in the sheer force of distress that is forcing its way across the UK,” Ms Palmer has warned.

Jonathan Munnery
Partner
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