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Begbies Traynor (BEG)

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Friday 29 October, 2021

Begbies Traynor

Latest Red Flag Alert Report for Q3 2021

RNS Number : 6299Q
Begbies Traynor Group PLC
29 October 2021
 

 

 

562,000 UK Business Facing Financial Distress in Q3 2021 with Dramatic Rise in Court Action Fuelling Insolvency Concerns

 

 

· 562,550 UK businesses in significant financial distress during Q3 2021- a 14% decrease over the last quarter

· 139% rise in CCJ's during Q3 2021 as businesses resort to using the courts to recover debts

· 17% rise in more serious critical business distress in the past quarter

 

The latest red flag research for Q3 2021 from Begbies Traynor, which monitors the financial health of UK businesses has recorded 562,550 businesses in 'significant financial distress1', with a 139% uplift in CCJs2 in the past year.

 

However, the number of businesses in significant financial distress has fallen 14% since Q2 2021. This fall can most likely be attributed to rising corporate revenues as pent-up customer demand has fuelled a boom in consumption and allowed some companies to improve their short term debt position, whilst improving cashflow. Whilst this has eased the immediate threat to many companies' survival, there is uncertainty if these trading patterns will continue.

 

Unfortunately, considerable challenges lay ahead for UK businesses, including constrained raw material availability, rising inflation, labour availability, spiralling energy prices and rising COVID rates, combined with a winding back of government COVID support measures that could yet impact failure rates in Q1 2022 and beyond.

 

CCJ's are often a bellweather for future insolvency and the latest data paints a gloomy picture. Official data shows there were 9,101 CCJs lodged against companies during Q3 2020, rising to 21,769 during Q3 2021, a 139% uplift. This acceleration in CCJ's was also evident between Q2 and Q3 2021 with a 51% increase.

 

The latest official figures show that court activity is picking up as creditors, become more aggressive in chasing debts. 

 

This research from Begbies Traynor also found that despite the Q3 improvement in the financial performance of businesses, the numbers of significantly distressed companies is still 15% higher than pre-pandemic (488,934 - Q3 2019, 562,550 - Q3 2021).

 

There has also been a 17% rise in critically distressed businesses3 in the past quarter, with 1,431 - Q2 2021 and 1,668 - Q3 2021. 

 

Top 10 Distressed Sectors*

 

1.  Support Services - 87,694

2.  Construction - 72,465

3.  Real Estate & Property - 70,552

4.  Professional Services - 39,095

5.  Telecoms - 36,307

6.  General Retailers - 35,107

7.  Health & Education - 31,810

8.  Media - 23,499

9.  Bars & Restaurants - 20,552

10. Manufacturing - 20,269

 

*Number of companies exhibiting significant financial distress.

 

Distressed Companies by Region*

 

1.  London - 149,784

2.  South East - 101,690

3.  Midlands - 66,527

4.  North West - 54,350

5.  South West - 39,870

6.  East of England - 38,829

7.  Yorkshire - 32,995

8.  Scotland - 28,615

9.  Wales - 16,769

10. North East - 10,974

11. Northern Ireland - 8,095

 

*Number of companies exhibiting significant financial distress. Table excludes 14,052 uncoded records.

 

Julie Palmer, Partner at Begbies Traynor, said:

 

"The UK economy - which remains one large recession short of its pre-COVID trajectory4 - is quickly recovering. However, it may prove to be transitory as rising CCJ figures are a cause for real concern.

 

"Despite the summer economic boom, systematic problems remain, and some businesses are encountering difficulties in paying back government COVID loans.  However, Inflation, energy costs and labour availability are risk factors for many of these businesses, particularly if they are unable to pass these costs on to their customers.

 

"Whilst many businesses have returned to a sense of normality, history suggests that high levels of debts and subsequent overtrading could eventually take their toll on these businesses."

 

 

Ric Traynor, Executive Chairman of Begbies Traynor Group plc, commented:

 

"The fall in significant financial distress is welcome news and provides some breathing space for hard hit businesses, however I remain concerned that trading conditions will deteriorate for many companies as supply chain issues affect output and input costs continue their upward trajectory. These challenges combined with more aggressive creditor action, as evidenced by the rise in CCJ's, demonstrate that companies are taking a tougher line to recover debts, as evidenced by the recent rise in insolvency levels.

 

More worrying has been the 44% rise in small business defaults for loans to corporations as published in the BOE's latest credit conditions survey. This trend is backed up by our own empirical evidence. Every week as a business we have hundreds of conversations with distressed businesses and their advisers, and three clear trends are now emerging. Firstly, there is real concern amongst many SME directors about their ability to pay back Government backed bounce back loans with many directors exploring short to medium term insolvency options. Secondly many directors say that HMRC is taking an increasingly aggressive line in chasing debts, particularly those who have defaulted on time to pay arrangements and thirdly many businesses are coming under considerable pressure from landlords chasing debts.

 

"These risks combined with the withdrawal of government support measures and protection will undoubtedly see an acceleration in insolvency rates into 2022."

 

 

 

- ENDS -

 

1 'Significant' distress is those 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.

2  'Critical' distress are those businesses with minor CCJs (of more than £5k) 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 creditworthiness of individuals and businesses.

4.   https://ifs.org.uk/publications/15691

 

For further information, contact:

McCann PR & Social

 

Catherine Senior

Tel: 07814935128

 

Jaya Harrar

Tel: + (0) 447974592677

Email:  [email protected]

 

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 the consistency of comparative data.

 

The release refers to the numbers of companies experiencing 'Significant' problems, which are those with minor CCJs (of less than £5k) 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 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

 

 

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