‘Insolvency wave’ fears as firms fight to survive
THE North East has seen more firms become critically distressed than anywhere else in the country, new research has found.
Between the final quarter of 2021 and the first quarter of 2022, the region experienced a 107% increase in companies in the bracket, which means they have had county court judgements of more than £5,000 filed against them.
Research in Begbies Traynor’s Red Flag Alert report highlights the curtailment of Covid support measures, the demands of repaying loans and spiralling costs as key reasons behind the rise.
The report’s authors have suggested it could spell a “wave of insolvencies coming” and have called on the Government to write off debts accrued via the likes of the Coronavirus Business Interruption Loan Scheme to help businesses.
There was some good news with a 2% fall in early-stage distress – when businesses have CCJs of less than £5,000 filed against them – though more than 11,178 businesses in the region were affected.
Gillian Sayburn, partner for Begbies Traynor in the North East, said: “The positive news that early business distress in the North East fell slightly in the latest quarter has to be tempered by a touch of realism as we face the most severe energy crisis since the 1970s.
“Given ongoing global uncertainty with the worsening situation in Ukraine and further lockdowns in China adding to supply chain problems, the economic outlook is looking very rocky in the immediate future.
“After two years of Covid disruption, unfortunately, it is likely that there are further challenging times ahead and we urge business owners to ensure they are as well-prepared as possible.”
Julie Palmer, fellow partner at Begbies Traynor, added: “The critical distress and CCJ data are likely predictors of a wave of insolvencies coming – it’s just a case of when the dam holding it back finally bursts.
“The latest Government insolvency figures for March reinforce this worrying trend with creditors voluntary liquidations – the most common type of corporate insolvency – more than doubling compared to March 2021 and up 62% compared to March 2019.
“The Government’s finances are themselves taking a hit from the increasing interest environment; they are simply not able to introduce further significant funding into the system, and they now have a choice to make. Do they rush to recover funds handed out during the pandemic to ensure there was a functioning economy afterwards? Or look for ways to control the number of businesses that fail?
“Having put so much money into protecting businesses over the past two years, ministers won’t want to see it wasted as companies collapse, unable to repay their debts.”
There was more positive news from the latest Lloyds Bank business barometer, however, which had business confidence in the North East rising slightly during April.
Firms flagged a range of growth opportunities for the next half-year, including evolving their offering (37%), investing in their team (36%) and entering new markets (28%).