RCS - Begbies Traynor - Latest Red Flag Alert Report for Q1 2022

Begbies TraynorAnnouncement

29/04/2022 07:00

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RNS Number : 7716J  Begbies Traynor Group PLC  29 April 2022

 

 

 

Critical corporate financial distress levels jump as economy faces
post-pandemic reality

 

·    Concerns as the number of companies in critical financial distress
increased to 1,891 in the first quarter of 2022, almost a fifth higher than
the same period last year

·    The 19% year-on-year increase has been driven by a 51% jump in the
construction sector and a 42% rise among bars and restaurants

·    Businesses in significant financial distress down 20% on the level a
year ago at 581,596, though this is flat on the previous quarter

·    County Court Judgements - a warning sign of future insolvencies - up
157% to 22,552 in the quarter compared with a year ago; with March having seen
the highest number in a single month for five years

·    Data from Begbies Traynor's "Red Flag Alert" points to a coming wave
of business failures as the economy adjusts to the post-pandemic reality with
Covid reliefs cut off and a rapid growth in inflation

 

The latest Begbies Traynor "Red Flag Alert" research, which has examined the
financial health of British companies for the past 15 years, highlights the
strain two years of extraordinary financial pressures have had on thousands of
UK companies.

Helped through the pandemic and its aftershocks by state support, the report
now reveals a 19% jump in the number of companies in critical financial
distress with these measures cut off and costs spiralling.

The most recent County Court Judgements (CCJs) data revealed 11,673 rulings in
March - up 179% on the monthly average for the previous two years - and the
highest level in a single month for five years.

With companies struggling with rising inflation, coupled with the demands of
repaying Government Covid support loans, there is now a growing risk of a wave
of insolvencies affecting vulnerable British businesses.

Julie Palmer, partner at Begbies Traynor, warned that unless there is action
to allow struggling businesses to mitigate the impact of these pressures, they
risk being unable to continue to operate.

"The critical distress and CCJ data are likely predictors of a wave of
insolvencies coming - it's just a case of when the dam holding it back finally
bursts.

"The latest Government insolvency figures for March reinforce this worrying
trend with creditors voluntary liquidations - the most common type of
corporate insolvency - more than doubling compared to March 2021 and up 62%
compared to March 2019.

"The Government's finances are themselves taking a hit from the increasing
interest environment; they are simply not able to introduce further
significant funding into the system, and they now have a choice to make. Do
they rush to recover funds handed out during the pandemic to ensure there was
a functioning economy afterwards? Or look for ways to control the number of
businesses that fail?

"Having put so much money into protecting businesses over the past two years,
ministers won't want to see it wasted as companies collapse, unable to repay
their debts."

Ms Palmer said one way the Government could ease the pressure on embattled
businesses while not writing off debts built up through measures such as the
Coronavirus Business Interruption Loan Scheme (CBILS) would be taking a
longer-term view.

She continued: "I'd expect low-cost forms of further support, probably through
leniency in repaying pandemic funding.

"We could see an approach similar to war bonds, with terms being extended as
ministers follow the adage that a rolling loan gathers no loss.

"Taking a hard line on repaying CBILS and other loans would likely drive
businesses over the edge, risking the billions fed into the economy being
wasted, and the legacy of this support probably explains the year-on-year fall
in significant financial distress."

Ric Traynor, executive chairman of Begbies Traynor, commented:

"Inflation has become a global issue, not just a domestic problem. The effects
of increasing costs are now starting to take their toll on businesses and
consumers alike. For the first time in more than a decade, inflation is the
prime concern for businesses.

"This could mean that companies which have just been surviving, being kept
alive only by government support, finally succumb to the inevitable.

"Additionally, consumer demand is likely to slow markedly as cost pressures
pile up ahead of the anticipated increase in energy costs in October, and
families reduce their appetite for spending accordingly. If these pressures
take their toll on both corporate and personal finances, it could be
particularly difficult in the latter quarters of this year. "

 

-- ENDS --

 

For further information, contact:

 MHP Communications:

 Alan Tovey           BegbiesCorporate@mhpc.com

 Charles Hirst        020 3128 8193 / 07595 461 231

 

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.

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 (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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