RCS - Begbies Traynor - Latest Red Flag Alert Report for Q4 2022

Begbies TraynorAnnouncement

24/01/2023 11:00

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RNS Number : 7029N  Begbies Traynor Group PLC  24 January 2023

 

Toxic Combination of Risks Afflict UK Businesses as

Concern Over a Surge in Insolvencies Grows

 

·    610,405 businesses across the UK in 'significant' financial distress,
4% higher than a year ago

·    11% rise in critical and 24% surge in significant distress levels
compared to Q4 2019, show the legacy impact of Covid debt and rising inflation

·    23,885 Country Court Judgements (CCJs) served in final three months of
2022; 52% up on 2021's level and 77% higher than pre-Covid

·    Small companies especially vulnerable as repayments on COVID loans
bite, combined with cuts to energy bill relief and high inflation, exacerbated
by falling demand.

 

Businesses are struggling at an increasing rate as a combination of legacy
COVID debt, inflation and greater pressure on consumers who are reining in
spending, increasing the levels of significant financial distress across UK
companies, according to the latest Begbies Traynor Red Flag alert report.

 

The report, which has been taking the pulse of British businesses for more
than 15 years, reveals the intense strain an increasing number of companies
are under as they are hit by rising labour and materials costs, higher energy
bills and an economy likely heading into recession.

 

Julie Palmer, partner at Begbies Traynor, said: "What we are hearing from
directors of businesses is extremely distressing.

 

"We came into 2022 hopeful that the pandemic was fully behind us and better
times were ahead, only for Russia's invasion of Ukraine to unsettle the global
economy, leading to spiralling inflation and soaring energy bills and laying
the foundations for what looks like a global recession. In the UK, in
particular, strikes are just piling on the pressure as staff struggle to get
to work and customers stay away.

 

"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.

 

"Throw in a such a gloomy economic outlook, with 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."

 

Data from this latest Red Flag Alert research revealed a 36% increase in
number of companies rated as being in "critical financial distress" in the
final quarter of 2022, compared to the same period a year ago, and 10% higher
than in the preceding three-month period. This is the sixth consecutive
quarter that businesses in critical distress levels have risen.

 

Red Flag Alert also found that there are 610,405 businesses across the UK
rated as being in "significant financial distress", a rise of 4% on Q4 2021.

 

County Court Judgements (CCJs), widely seen as a leading indicator of
financial distress, are also climbing rapidly. There were 23,885 CCJs in the
final quarter of 2022, a 52% rise in the level compared to the same period a
year ago. Winding Up Petitions, a much more serious legal action lodged by
creditors, totalled 576 in the same period, a rise of 131% compared with 2021.

 

A clear measure of the distress businesses face today comes from comparing the
latest CCJ data against pre-pandemic levels - which strips out the impact of
Government relief packages and the moratorium on legal action to recover COVID
debts. In the final quarter of 2019, the number of CCJs registered was 13,484,
meaning the latest number is 77% higher.

 

Ms Palmer added: "Considering what directors of businesses are facing, I'm
very surprised that we are not seeing more of them finally giving up and
shutting down. That so many are holding on in the face of such strain is a
testament to their abilities to manage their way through incredibly tough
times and a seemingly endless run of fresh hurdles.

 

"Many of the companies captured by the Red Flag Alert are SMEs, without the
financial firepower larger enterprises have to fall back on. We should be
applauding the directors of these smaller companies which make up the backbone
of the UK's economy for the incredible tenacity they have shown for so long."

 

Red Flag Alert's findings come at a time when the Government is preparing to
scale back help for companies struggling to pay rising energy bills. When the
new lower relief rates start in April, one lobby group calculates that the
average small business will get £47 a year in government support, meaning
that some SMEs could be subject to energy tariffs at least three times higher
than even last year.

 

Critical distress levels among hospitality businesses surged 157% against last
year's data. A high proportion of the fixed costs of these businesses is
energy related and there is concern that, post April 2023, there could be a
spike in insolvency rates in this sector due to the modest level of Government
assistance. Additionally, many of these businesses will face further distress
as repayments on COVID-related debts become due. These factors combined with
falling consumer demand could wreak havoc on an already vulnerable sector.

 

Ric Traynor, Executive Chairman of Begbies Traynor, commented: "Although we
are - hopefully - 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."

 

 

Top 10 Sector Ranking - Significant Financial Distress (Number of Companies in
Significant Financial Distress)

1.    Support Services (94,868)

2.    Real Estate & Property (86,892)

3.    Construction (77,077)

4.    Professional Services (42,033)

5.    Telecoms (41,207)

6.    General Retailers (38,068)

7.    Health & Education (31,651)

8.    Media (25,565)

9.    Manufacturing (21,943)

10.  Bars & Restaurants (18,905)

 

-- ENDS --

 

For further information, contact:

 MHP Communications:

 Alan Tovey           07833 437044

 Charles Hirst        07595 461 231

                      BegbiesCorporate@mhpgroup.com

 

 

Notes to Editors

"Significant distress" is defined as businesses with minor CCJs (of less than
£5k) 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. "Critical distress" is defined as businesses with minor CCJs (of more
than £5k) filed against them.

 

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 creditworthiness of individuals and
businesses.

 

About Red Flag Alert

Begbies Traynor's Red Flag Alert has been measuring and reporting corporate
financial distress since 2004. It has become a benchmark on the underlying
health of companies across every sector and region of the UK.

 

Red Flag Alert's algorithm 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. The algorithm was refreshed in Q3 2017 to enhance the risk factors
analysed in the data. The reported results have been backdated to ensure the
consistency of comparative data.

 

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 (http://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 more than 900 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
(https://urldefense.proofpoint.com/v2/url?u=http-3A__www.begbies-2Dtraynorgroup.com_investor-2Drelations&d=DwQGaQ&c=Ftw_YSVcGmqQBvrGwAZugGylNRkk-uER0-5bY94tjsc&r=4c8-e7ZulPluCjuukCUl3Blcpa7AxNK9t_fq5q12Rio&m=gniKH13HovPYCUqh05hwVKc1DJGxkZ3dwvoxVs_lHHc&s=awSgXTvfyTjgcykSM9Qoz7ojnpEf1ZCJd21_xLbjAkI&e=)

 

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