UK corporate debt soared by £1.9tn in 2020 to £6.6tn, with some 52% of UK businesses now saddled with ‘toxic debt’ that may never be repaid, according to new data from Begbies Traynor Group.
The analysis of 3 million tax returns by the restructuring and insolvency specialist, discovered that 2020 accounts show 1.2 million businesses with a liquidity ratio lower than 1*. It also found that corporate debt soared by £1.9tn to £6.6tn last year as coronavirus devastated UK business.
Begbies Traynor is expecting that the repercussions of these ‘toxic debts’ will be exacerbated by many creditors calling them in from September when courts reopen and they can chase payments they have missed for a lengthy period of time.
The data also revealed that some sectors are in a more vulnerable position than others. Two thirds (67%) of businesses in Real Estate and Property, (66%) Hotels and Accommodation and (65%) Bars and Restaurants are now unlikely to be able to pay their current liabilities.
Brendan Clarkson, director of national creditor services at Begbies Traynor, said:
“Toxic debt is being washed around UK business and there is a real danger that the loans from the government to help businesses through this time will never be repaid.
“As a result, there is likely to be a scramble from September, for creditors to seek payments from lendees. The longer they do not have payment, the longer they themselves are at risk of transforming into ‘zombie’ businesses racked with debt and trying to gather income to service that debt.”
He added: “We are now at a stage where many companies will not be able to pay their debts for the next 12 months. It’s a harrowing position, but it is one that we have to prepare for and find the best outcome of. We can’t simply have a cliff-edge of insolvencies from September. We need to stagger the damage so that the economy and the courts can handle the high levels of pressure.”
Julie Palmer, partner at Begbies Traynor, said: “The high percentage of companies with toxic debt across sectors and the rising debt of corporate UK is alarming. The fact that EBITDA of all UK businesses stands at £300bn is encouraging, but it isn’t enough to counteract the huge debts that companies have loaded on their backs at this time.
“UK plc is at a crossroads but there are strong, talented businesses in the pack that are eating through their debt and building strength. Many of the companies we analysed had a liquidity ratio above 1.5 meaning they were in a solid position to thrive after this pandemic. They can hold the debt they have and they can hoover up the wealth of opportunities that zombie companies leave behind.”