TIDMBEG
Begbies Traynor Group PLC
21 January 2021
Embargoed until 00:01 on 21.01.2021
630,000 UK businesses now in significant financial distress
as
new lockdown comes into effect
-- 630,000 businesses now in 'significant distress(1) ', a 13%
increase from Q3 2020 to Q4 2020 (largest numerical quarterly
increase since Q2 2017)
-- 27.5% year-on-year increase in 'significant distress(1) '
(136,000 businesses) since Q4 2019
-- Financial distress increases across all 22 sectors monitored by this research
-- London experiences a 33% increase in significant financial distress since Q4 2019
The latest Red Flag Alert research for Q4 2020 has recorded
630,000 businesses in 'significant distress(1) ' after the largest
numerical quarterly leap (73,000) in financially distressed
companies since Q2 2017. This 13% increase (from 557,000 in Q3
2020) comes as the UK is plunged into another nationwide
lockdown.
This newly published research from Begbies Traynor also found
that there has been a 27.5% increase in significantly distressed
companies since Q4 2019 (494,000 - Q4 2019, 630,000 - Q4 2020) with
financial services increasing by 38% (12,587 - Q4 2019, 17,423 - Q4
2020), real estate and property services increasing by 39% (53,224
- Q4 2019, 73,952 - Q4 2020) and hotels and accommodation
increasing by 32% (5,659 - Q4 2019, 7,494 - Q4 2020).
Every one of the 22 sectors monitored by the Red Flag Alert
research exhibited an increase in significant distress, with 18
sectors experiencing double digit increases in the final quarter of
2020 - a worrying sign for the UK economy. This highlights the
deteriorating financial situation for many companies.
Tip of the Iceberg
However, it is likely that these figures are the tip of a very
large iceberg. The coronavirus pandemic has reduced court activity
limiting the number of CCJs(3) and winding up petitions being
issued against indebted companies and there has been a ban on
winding up petitions for Covid-related debts.
Data shows there were 14,030 CCJs lodged against companies
during October, November and December in 2019, with only 9,716
lodged during the same period in 2020, a fall of 31%. The situation
is even more acute with regard to more serious winding up
petitions. During October, November and December 2019, 644 were
lodged compared to just 94 during the same period in 2020, a fall
of 85%. Additionally, the average value of judgements has more than
doubled from GBP2,790 in Q3 2019 to GBP5,844 in Q3 2020, with the
median value up 153% from GBP902 to GBP2,280, showing that larger
judgements are still be actioned compared to smaller
judgements.
Julie Palmer, Partner at Begbies Traynor, said:
"These figures give an insight into some of the financial
stresses that have been building in UK business. Without the
financial aid and support measures that the Government has put in
place during the pandemic insolvency levels would have been much
higher, however the sad truth is that for many companies this will
provide little more than a stay of execution as debt levels become
unmanageable and structural changes across many sectors take their
toll.
"The announcement of the latest national lockdown will do little
to help and even the chancellor has reiterated that he cannot save
every business. And the harsh reality is that the Government will
have to be ruthless when handing out rescue funds, because not all
businesses will be sustainable, even when the flood waters
subside.
"Although the Government has extended its Covid-19 financial
support, this simply won't be enough for thousands of businesses
who likely will not survive in the interim. Although the UK's
announcement of a trade deal with the EU and the roll-out of
Covid-19 vaccines offer some light at the end of a very dark
tunnel, the situation is going to remain bleak over the next
quarter and beyond."
Sectors
The financial services sector has had a torrid time with a 38%
year on year and 24% quarter on quarter increase in significant
financial distress as the effect of the pandemic bites. The short
term outlook for this sectors remains uncertain not helped by a
lack of a Brexit trade deal for financial services and ongoing
uncertainty around equivalence.
Despite the booming residential property market the whole real
estate and property sector - a key indicator of the economy's
performance - has seen 11,000 businesses enter significant distress
and rise by 18% in the last quarter (62,615 - Q3 2020, 73,952 - Q4
2020), while there has been a leap of 39% compared to the same
period last year (53,224 - Q4 2019, 73,952 - Q4 2020).
Construction businesses have also seen an impact, despite
activity being able to continue during lockdowns. There are now
80,018 construction businesses in significant distress, a
year-on-year increase of 27% (63,209 - Q4 2019, 80,018 - Q4 2020)
and a quarterly increase of 11% (72,402 - Q3 2020, 80,018 - Q4
2020).
Unsurprisingly, the hospitality sector continues to be one of
the hardest hit sectors by Covid-19 with government restrictions
forcing thousands of businesses to close or limit their operations.
This has been evidenced by an 18% increase for hotel and
accommodation businesses in significant distress in the last
quarter (6,327 - Q3 2020, 7,494 - Q4 2020), and a 32% increase
compared to the same period last year (5,659 - Q4 2019, 7,494 - Q4
2020). However, these numbers are likely to be understated due to
the short-term financial support options available which will be
keeping thousands on artificial life support.
UK Regions
The Capital's dependence on the financial services and
hospitality sectors is laid bare in this research, with London
businesses experiencing a huge 33% year on year increase in
significant financial distress, and a 17% quarter on quarter
increase. However Northern Ireland businesses shows the sharpest
deterioration with a considerable 40% increase in significant
financial distress since Q4 2019, a situation likely to be
complicated by post Brexit border complications.
Ric Traynor, Executive Chairman of Begbies Traynor Group plc,
commented:
"UK businesses have been dealt another body blow by the latest
national lockdown. 2020 was a devastating year for thousands of
businesses as they fell deeper into financial distress and Q1 2021
seems to be offering little hope of an upturn in the market. The
Government's extended furlough and financial support measures will
provide some relief and certainly save a significant number of
businesses from entering into insolvency in the short term.
"There are many zombie businesses that have been hanging on by a
thread for years before this pandemic. The period post government
support may well see a shake out of these struggling businesses and
ultimately leave the stronger businesses to grow and create a more
robust and dynamic economy in the medium term."
-S -
1 'Significant' distress is those businesses with minor CCJs (of
less than GBP5k) filed against them or which have been identified
by Red Flag Alert's proprietary credit risk scoring system which
screens companies for a sustained or marked deterioration in key
financial ratios and indicators including those measuring working
capital, contingent liabilities, retained profits and net
worth.
2 'Critical' distress are those businesses with minor CCJs (of
more than GBP5k) filed against them
3 In England and Wales, County Court Judgments (CCJs) are legal
decisions handed down by the County Court. Judgments for monetary
sums are entered on the statutory Register of Judgments, Orders and
Fines, which is checked by credit reference agencies to assess the
credit-worthiness of individuals and businesses.
For further information, contact:
McCann PR & Social
Ian Stanley / Tom Chaplin
Tel: 07974 266458 / 07974 266458
Email: Begbies@mccann.com
Notes to Editors:
About Red Flag Alert
Red Flag Alert has been measuring and reporting corporate
financial distress since 2004, and over that time has become an
industry benchmark of the underlying health of companies across
every sector and region of the UK.
Through its unique algorithm, the Red Flag Alert measures
corporate distress signals, drawing on factual legal and financial
data from a wide range of relevant sources, including intelligence
from the UK's leading insolvency business, Begbies Traynor. Please
note that the Red Flag Alert algorithm was refreshed in Q3 2017 to
enhance the risk factors analysed in the data. The reported results
have been backdated to ensure consistency of comparative data.
The release refers to the numbers of companies experiencing
'Significant' problems, which are those with minor CCJs (of less
than GBP5k) filed against them or which have been identified by Red
Flag's proprietary credit risk scoring system which screens
companies for a sustained or marked deterioration in key financial
ratios and indicators including those measuring working capital,
contingent liabilities, retained profits and net worth.
Red Flag Alert is commercially available to all businesses, on
an annual subscription basis, to help them better understand risk
and exposure and help prepare them for the future. Further
information about Red Flag Alert can be found at:
www.redflagalert.com
Economically active businesses exclude those that are flagged by
companies house as being, Non-trading, Listed for Strike off /
Strike off pending, Insolvent or Dissolved. Companies where there
is insufficient information available for RFA to assign a health
rating are also excluded.
Begbies Traynor Group
Begbies Traynor Group plc is a leading business recovery,
financial advisory and property services consultancy, providing
services nationally from a comprehensive network of UK locations.
The group has 735 staff and partners and the professional staff
include licensed insolvency practitioners, accountants, chartered
surveyors and lawyers.
The group's services include:
Business recovery and financial advisory
Corporate and personal insolvency - we handle the largest number
of corporate appointments in the UK, principally serving the
mid-market and smaller companies.
Corporate finance - buy and sell side support on private company
transactions.
Financial advisory - forensic accounting and investigations,
debt advisory, business and financial restructuring, due diligence
and transactional support.
Property advisory and transactional services
Valuations - valuation of property, businesses, machinery and
business assets.
Property consultancy, management and planning - building
consultancy, commercial property management, specialist insurance
and vacant property risk management, transport planning and
design.
Transactional services - sale of property, machinery and other
business assets through physical and online auctions; business
sales agency; commercial property agency focussed on northern and
eastern England.
Further information can be accessed via the group's website at
www.begbies-traynorgroup.com/investor-relations
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END
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