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Manchester based insolvency specialists, Begbies Traynor, have warned of an ‘insolvency storm’ for the North-west in the coming year as the end of Covid-19 support from government and creditors puts increased financial pressure on business.
The warning comes following the publication of the firms’ latest Red Flag Alert report, which as monitored the health of British companies over the last 15 years. The report warns that almost 600,000 UK businesses reported significant financial distress during the final three months of 2021. The insolvency specialists found that in the North-west. 55,728 businesses were in poor financial health.
County Court Judgements (CCJs), often a precursor to insolvency, also rose 106% as creditors look to recover unpaid debts.
Julie Palmer, partner at Begbies Traynor, said:
“Businesses that have bravely battled through the pandemic could now start to fail as the pressures they face become too much.
“Support from the Government such as furlough payments, tax reliefs and a moratorium on landlords being able to evict businesses due to rent arrears cannot go on forever.
“Without these measures in place to protect them, a rising number of companies will have no other option but to relinquish their business after two years of struggling on in the economic uncertainty that has been tempered by measures to combat the impact of coronavirus.
“The lag effect of the economic fallout from Covid, plus significantly higher inflation, has created a perfect economic storm for many companies, particularly the UK’s SME sector, which will undoubtedly drive insolvency rates even higher.”
High levels of inflation are also being attributed to the significant vulnerability of the construction sector, which ranked near the top of the insolvency specialists’ league table of most distressed sectors across the economy.
Ric Traynor, Executive Chairman of Begbies Traynor Group plc, commented:
“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.
“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.
“Ultimately, these market dynamics, on top of the withdrawal of government support measures and protection, is likely to lead to a rapid acceleration in insolvency rates over the course of 2022 and beyond.”