160,000 companies in financial distress
Over 160,000 companies are experiencing significant or critical financial distress, according to figures from business recovery specialist Begbies Traynor.
In its latest Red Flag update, which highlights troubled companies, the number of firms experiencing significant financial problems was reported to have jumped by 20,074, or 14 per cent, to 161,601 in the first three months of this year.
Begbies Traynor estimates that seven per cent of the increase is the result of a trade creditors becoming more aggressive, with an increase in court actions evidence of their growing willingness to take action against their debtors. The remainder of the increase could be attributed to normal seasonal uplift.
The survey shows that distressed UK businesses owe over £55bn to creditors, suppliers and service providers putting them at a severe risk of defaulting.
Ric Traynor, executive chairman of Begbies Traynor Group, said: "While the economy appears to be showing positive signs of recovery, the magnitude of the liabilities still at risk of default represents a serious risk to creditors, indicating the potential far-reaching impact of these levels of distress. It is this ripple effect which represents a real threat to a sustained economic recovery."
The sectors worst affected in the first quarter of 2010 include construction, in which companies experiencing significant or critical financial problems were up 30 per cent, professional services up 19 per cent, property services up 42 per cent , recruitment up 18 per cent and retail up 19 per cent on the previous quarter.
Traynor added that companies will be put at an even greater risk should interest rates rise during the economy’s recovery. He said: "Low interest rates have been one of the principal reasons why business failures have not yet reached the peak levels many feared this savage recession would cause."
Experience of previous recessions shows that the recovery phase of the economic cycle has represented the greatest challenge to vulnerable small and medium sized businesses (SMEs), meaning that the inevitable withdrawal of the government's Time to Pay scheme could topple more firms.
Posted at 09:13PM Apr 28, 2010 by Kelly Board in The Economy | Comments[0]
