The latest Begbies Traynor ‘Red Flag Alert’ research, which has examined the financial health of British companies for the past 15 years, has highlighted the strain the events of the past two years have had on thousands of UK companies.
It found that while many businesses were aided through the pandemic and its aftershocks by state support, a lot are struggling now the assistance has ended and costs are spiralling.
The most recent County Court Judgements (CCJs) data – a warning sign of future insolvencies – revealed 11,673 rulings in March, up 179% on the monthly average for the previous two years and at the highest level in a single month for five years. For the quarter, the figure was 22,552.
With companies struggling with rising inflation, coupled with the demands of repaying government Covid support loans, the report found there is a growing risk of a wave of insolvencies affecting vulnerable British businesses.
The number of companies in critical financial distress increased to 1,891 in the first quarter of 2022, almost a fifth higher than the same period last year, with businesses in significant financial distress down 20% on the level seen a year ago at 581,596, though this is flat on the previous quarter.
Julie Palmer, partner at Begbies Traynor, said creditors voluntary liquidations – the most common type of corporate insolvency – more than doubled in March this year compared to March 2021 and were up by 62% compared to March 2019.
“The government’s finances are themselves taking a hit from the increasing interest environment; they are simply not able to introduce further significant funding into the system, and they now have a choice to make.
“Do they rush to recover funds handed out during the pandemic to ensure there was a functioning economy afterwards? Or look for ways to control the number of businesses that fail?
“Having put so much money into protecting businesses over the past two years, ministers won’t want to see it wasted as companies collapse, unable to repay their debts.”
She said she expected to see the government introduce “low-cost forms of further support”, likely through leniency in repaying pandemic funding.
“We could see an approach similar to war bonds, with terms being extended as ministers follow the adage that a rolling loan gathers no loss.
“Taking a hard line on repaying CBILS [Coronavirus Business Interruption Loan Scheme] and other loans would likely drive businesses over the edge, risking the billions fed into the economy being wasted, and the legacy of this support probably explains the year-on-year fall in significant financial distress.”
In brighter news, separate new research from insurance premium finance company Premium Credit has found that 37% of SMEs expected their revenue to increase over the next 12 months, with 15% predicting increases of 10% or more. Only 26% believed their revenues would fall over the next 12 months while 18% expected them to stay the same and 21% did not know what would happen.
The main reason for growth in revenue was the general recovery from the impact of the pandemic, cited by 58% of firms expecting growth, while 35% said it would be driven by launching new products and 34% by entering new markets.
The research was conducted online by Consumer Intelligence among 745 SME owners and managers in March this year.
