More UK companies in financial distress

Businesses concerned about possible winding-up of govt support program

The number of companies in the United Kingdom reported to be in "significant financial distress" has grown at its fastest rate since 2014 as the impact of the COVID-19 pandemic continues to weigh on business, according to new research.

With the UK government's pandemic support for business due to end in the summer, there are concerns that many companies could soon face insolvency.

The Red Flag Alert report produced by insolvency specialists Begbies Traynor noted that a total of 93,000 companies have fallen into financial distress in the past three months, the largest quarterly jump in seven years.

This represents a 15 percent increase from the previous quarter as many companies stopped trading again because of the third novel coronavirus lockdown, said a statement from Begbies Traynor.

It said 723,000 businesses were suffering in total, which is a 42 percent jump on the first quarter of last year, prior to the full impact of the pandemic.

Companies in the logistics and real estate sectors were hardest hit over the first three months of this year, the report said, warning that an easing of lockdowns may not be able to prevent many companies from slipping into insolvency.

Trading difficulties caused by Brexit, the UK's exit from the European Union, have hit smaller businesses, particularly in the logistics sector, noted the Financial Times.

Businesses in London experienced a significant 46 percent year-on-year increase in "significant financial distress", and a 14 percent quarter-on-quarter rise, said Begbies Traynor.

London's reliance on both the leisure and hospitality and financial services sectors has made it "particularly vulnerable to the short-term effects of COVID-19", it said.

Julie Palmer, partner at Begbies Traynor, said more companies could slide into trouble despite the easing of pandemic restrictions.

"The dam of zombie businesses could be about to break," she said. "Opening the doors of consumer-facing businesses on April 12 may well seem like a big step in the right direction for many of these companies as they try to shake off the traumatic trading of the last 12 months.

"However, our experience shows that unmanageable levels of debts and subsequent overtrading are likely to be the hidden icebergs waiting to sink even the highest-profile businesses," she said in a statement.

Ric Traynor, executive chairman of Begbies Traynor, said in the statement that despite the central government support, companies were struggling due to the combination of increased debt and poor revenue streams.

He said: "The termination of this support will leave many businesses exposed to the true scale of their debt, and in many cases this will be simply unsustainable, with research indicating that some companies will be unable to even meet their interest repayments.

"This rise of insolvencies will not just be the well-documented "Zombie" businesses but credible businesses who have suffered disproportionately because of the pandemic."