Businesses are now braced for the insolvency storm to “hit home”, with those reporting ‘significant financial distress’ up 5% during final quarter of 2021 to 589,168, according to Begbies Traynor’s latest Red Flag Alert research.
It revealed there is also a 106% rise in County Court Judgments (CCJs) – a “key” early sign of future insolvencies as creditors are now actively using courts to recover debts.
The firm said the situation is “even worse” for companies already on the brink of failure, with critical financial distress up 7% year‐on‐year in the final three months of 2021.
The report suggests inflation is now the “greatest” threat to the economy with the true rate potentially running far beyond the official 5.4% rate and possibly many multiples more than the Bank of England’s target of 2%.
Ric Traynor, executive chairman of Begbies Traynor Group plc, said: “The growth in significant financial distress is very concerning and provides further evidence of the pressure the current economic backdrop is placing on UK businesses.
“With nearly all sectors experiencing a deterioration of their financial position since the last quarter, the ongoing supply chain issues and a 30‐year record for inflation are less than ideal for companies that have already been hard hit by the pandemic.”
He added: “This new data, combined with the recently published Government insolvency statistics which highlighted a 33pc rise in corporate insolvencies in December 2021 vs December 2019 demonstrates that 2022 is going to be very difficult for many SMEs.
“Aggressive creditor action is often seen as a leading indicator for insolvencies, and the 100%+ increase in CCJs demonstrates that companies are taking a tougher line on recovering debts, in many cases to ensure their own survival.”