Research warns that British businesses face ‘considerable challenges’ in the future, with more than half of a million in ‘financial distress’.

  •  Data reveals a 139% rise in county court judgements as firms recover debts
  • Firms in’more serious and critical business distress’ are up 17% 
  •  Supply chain issues, inflation and labour shortages boost woes for UK firms

Begbies Traynor’s research found that more than half of a million British firms were in’significant financial strain’ in the third quarter. It warned that there were ‘considerable obstacles ahead’ for UK companies.

The 562,550 figure is a 14% decline over the quarter before, when Britain was just emerging form lockdown. However, it also includes a 133% increase in county court judgments, as businesses try to recover their debts.

According to the latest research by a business rescue and recovery specialist, there has been an increase of 17% in firms that are in’more severe critical business distress’.

CCJs can be seen as a ¿bellweather¿ for future insolvency and the sudden rise in this category ¿paints a gloomy picture¿.

CCJs are a ‘bellweather for future insolvency’ and the sudden rise of this category ‘paints in a gloomy image’.

‘Significant’ distress is defined by Begbies Traynor as those businesses with CCJs of less than £5,000 filed against them or which have been identified by the firm’s proprietary credit risk scoring system.

‘Critical’ distress refers to businesses with CCJs of more than £5,000 filed against them.

Begbies Traynor suggested that the fall in companies in severe distress could be attributed rising corporate revenues. Pent-up demand from customers ‘fuelled an explosion in consumption and allowed some businesses to improve their short term credit position while improving their cashflow’.

While some companies have seen their pressures decrease, it remains to be seen how long this respite will last.

Begbies Traynor stated that there were many challenges facing UK businesses. These included constrained raw materials availability, rising inflation and labour availability. There is also the possibility of rising Covid rates and spiralling energy prices. This could be combined with a winding down of government Covid support measures, which could still impact failure rates in Q1 2022.

It stated that CCJs could be viewed as a ‘bellweather for future insolvency’ and that the sudden rise of this category ‘paints a gloomy image’.

CCJs against companies rose to 21,769 in Q3 2021.

Construction, support services, and real-estate and property are the most affected sectors in terms of financial distress, with 87.694, 72.465 and 70.552 businesses, respectively.

Regions with distressed businesses 
Regions with distressed businesses
London – 149.784
South East – 101.690
Midlands – 66.527 
North West – 54,350
South West – 39,870
East of England – 38,829
Yorkshire – 32,995
Scotland – 28,615
Wales – 16,769
North East – 10,974
Northern Ireland – 8,09

London and the South East are the most impacted regions with 149,784 & 101,690 respective busi-nesses. Midlands follow with 66.572 firms.

Significantly, the Bank of England recently revealed that small business defaults have increased by 44% for loans to corporations.

Begbies Traynor partner Julie Palmer said that the UK economy, which is still one large recession below its pre-Covid trajectory, is rapidly recovering.

Sectors with distressed businesses 
Support Services – 86.794 
Construction – 72.465
Real Estate & Property – 70,552
Professional Services – 39,095
Telecoms – 36,307
General Retailers – 35.107
Health & Education – 31,810
Media – 23,499
Bars & Restaurants – 20,552
Manufacturing – 20 269

‘But it may be temporary as rising CCJ figures can be a cause for concern.

‘Despite the summer economy boom, systemic problems remain and some businesses are having difficulty paying back government Covid Loans.

“However Inflation, Energy Costs and Labour Availability are Risk Factors for Many of These Businesses, Particularly if they cannot pass these costs on their customers.

Ric Traynor, executive chair, stated: “I remain worried that trading conditions will deteriorate in many companies as supply chain problems affect output and input costs con-tinue the upward trajectory of their businesses.

“These challenges, combined with more aggressive creditor actions, as evidenced in the rise in CCJs, show that companies are taking a harder line to recover debts. This is evident in the recent rise of insolvency levels.