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Perfect Storm Forecast for Struggling Companies

By Jon Munnery
29 October 2020

The coming months could represent a “perfect storm” of difficult operating conditions for a lot of UK companies already under financial strain.

That’s according to the corporate insolvency experts of Begbies Traynor, whose latest ‘Red Flag Alert’ report estimates that there were 557,000 companies in ‘significant distress’ during the third quarter of this year.

Some sectors have been hit harder than others by the pandemic but the number of companies in distress has been rising across many different parts of the UK economy.

Begbies Traynor’s data indicates there has been a 9 per cent rise in the number of firms in significant distress since March and a 6 per cent jump during the third quarter alone.

The latest figures on how many companies are in financial trouble are stark but the reality of the situation could actually be worse, with county court judgements and winding up petitions currently not being processed as quickly as they would normally be.

“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 Begbies Traynor partner Julie Palmer in a statement. 

“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,” she added.

According to Ms Palmer, the impending withdrawal of some important financial support measures for businesses, along with persistently very tough trading conditions, could be enough for a lot of companies that have been struggling to officially become insolvent.

“Unfortunately for the many zombie companies in existence across the UK, a perfect storm is on the horizon,” she said.

“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.”

Jonathan Munnery
Partner
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