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Over 610,000 businesses across the UK are in “significant” financial distress as the number of companies facing insolvency is 4% higher than last year, according to Begbies Traynor’s ‘Red Flag Alert’ report.
The report, which has been monitoring businesses for over 15 years, also revealed an 11% rise in critical and 24% surge in significant distress levels compared to pre-pandemic, showing the legacy impact of Covid debt and rising inflation.
According to the firm, small companies are especially vulnerable on Covid loan repayments, as the problem has been compounded by cuts to energy bill relief, high inflation and falling demand.
As a result, over 23,800 Country Court Judgements (CCJs) served in the final three months of 2022, showing an increase of 52% on 2021’s level. This number is also 77% higher than pre-Covid court judgements.
Julie Palmer, partner at Begbies Traynor, said: “What we are hearing from directors of businesses is extremely distressing. We’re taking calls from company bosses who are having trouble digging deep enough to keep battling on.
“They are already having to pay back the support they took to get through Covid, and anecdotally, we are hearing that both the Government and HMRC are becoming more determined in pursuing debts, while other creditors are increasingly turning to the law to recover their debts.”
She added: “Throw in inflation at 40-year highs and interest rates at levels not seen for 14 years, and you can see why more and more companies are starting to feel the burden of their debts, making directors question whether they can go on.”
Ric Traynor, executive chairman of Begbies Traynor, said: “Although we are about to pass the peak of inflation and the UK looks to have avoided recession at the end of last year, the strain is very clearly showing on businesses, as insolvency rates accelerate.
“Interest rate hikes look set to continue into Q2 2023, placing further strain on the finances of both businesses and consumers. This, combined with a far less generous business energy support scheme and legacy Covid debts, do not bode well for many SMEs, and I fear that failure rates will continue to rise well into 2024.”
