Business rescue, recovery and restructuring specialist Begbies Traynor Group (LON:BEG) warns that distressed UK businesses have £55bn of liabilities at risk of default. Its latest Red Flag update, which monitors the warning signs of companies in distress, shows that the number of companies experiencing significant or critical financial problems has risen by 20,074 or 14% to 161,601 in the first quarter of 2010 (Q4 2009: 141,527). It estimates that approximately 7% of the increase is the result of a shift in trade creditor behaviour, with an increase in court actions evidence of a growing willingness to take action against debtors. The remainder of the increase could be attributed to the normal seasonal uplift.
Executive chairman Ric Traynor 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.
"Faced with these risks, and a growing need to bolster their own funding for the recovery phase, trade creditors are increasingly seizing the opportunity to take action against their debtors in order to raise much needed working capital.
"This shift in behaviour heralds a new phase in the cycle, putting businesses experiencing financial problems at greater risk of failure."
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