RCS - Begbies Traynor - Latest Red Flag Alert Report for Q4 2021

Begbies TraynorAnnouncement

28/01/2022 07:00

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RNS Number : 9108Z  Begbies Traynor Group PLC  28 January 2022

 

Businesses braced for insolvency storm to hit home, as pandemic state aid and
protection from creditors is shut off

 

·      589,168 UK businesses reporting significant financial distress
during final quarter of 2021, a 5% rise on the previous three months

·      106% rise in County Court Judgments (CCJs) - a key early sign of
future insolvencies as creditors are now actively using courts to recover
debts

·      As Covid reliefs unwind, financially distressed companies brace
for full force of debts to hit

·      Pressure ratcheting up almost across the board, with only one
sector of the 22 covered by the "Red Flag Alert" (RFA) research showing an
improved position

·      Situation even worse for companies already teetering on the brink
of failure, with critical financial distress up 7% year-on-year in the final
three months of 2021

 

Begbies Traynor's "Red Flag Alert", which has monitored the financial health
of British companies for the past 15 years, now paints a particularly worrying
picture for UK businesses with increasing numbers falling victim to pressures
which have been building since coronavirus began piling up problems in the
economy almost two years ago.

 

The latest data indicates that the debt storm which has been brewing for
years, but had been held off by measures to provide breathing space for
companies, could now be about to hit, sending shockwaves through many
industries.

 

Julie Palmer, partner at Begbies Traynor, said: "Businesses that have bravely
battled through the pandemic could now start to fail as the pressures they
face become too much.

 

"Support from the Government such as furlough payments, tax reliefs and a
moratorium on landlords being able to evict businesses due to rent arrears
cannot go on forever.

 

"Without these measures in place to protect them, a rising number of companies
will have no other option but to relinquish their business after two years of
struggling on in the economic uncertainty that has been tempered by measures
to combat the impact of coronavirus.

 

"The lag effect of the economic fallout from Covid, plus significantly higher
inflation, has created a perfect economic storm for many companies,
particularly the UK's SME sector, which will undoubtedly drive insolvency
rates even higher."

 

According to Ms Palmer, inflation is now the greatest threat to the economy
with the true rate potentially running far beyond the official 5.4% rate and
possibly many multiples more than the Bank of England's target of 2%. Today,
rising wage, energy and materials costs mean the CPI figures are showing only
part of the story in the UK and the subsequent impact on the public's
disposable income is expected to be far greater.

 

She continued: "The construction sector looks particularly vulnerable as raw
material availability, combined with record inflation, has significantly
reduced the margins for many SMEs. We are also seeing evidence of over-trading
within construction as the sector's boom post-lockdown has caused real
cashflow issues that are now impacting on businesses."

 

Although official Government support measures are unwinding, Ms Palmer says
there are indications that the authorities are willing to help businesses
which are trying to fight on.

 

She added: "Anecdotally, we are hearing stories about HMRC giving companies
two or even three years to pay their tax bills.

 

"Extra leniency may not be an official policy, but it sends a signal that
officials are trying to help businesses survive - even though it might only be
delaying the inevitable."

 

                                           Top 10 Distressed Sectors*                                        Distressed Companies by Region*
 1.     Support Services                                  93,041                                                   1.     London               159,476
 2.     Construction                                      75,825                                                   2.     South East           106,047
 3.     Real Estate & Property Services                   75,052                                                   3.     Midlands             69,129
 4.     Professional Services                             41,129                                                   4.     North West           55,728
 5.     Telecommunications & IT                       38,006                                                   5.     South West           41,372
 6.     General Retailers                                 35,962                                                   6.     East of England      40,558
 7.     Health & Education                                32,583                                                   7.     Yorkshire            34,203
 8.     Media                                             24,773                                                   8.     Scotland             29,902
 9.     Other Manufacturing                               21,369                                                   9.     Wales                17,227
 10.   Bars & Restaurants                                 20,846                                                   10.   Uncoded               15,479
                                                                                                                   11.   North East            11,364
                                                                                                                   12.   Northern Ireland      8,683

 

* Number of companies exhibiting significant financial distress.

 

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

 

"The growth in significant financial distress is very concerning and provides
further evidence of the pressure the current economic backdrop is placing on
UK businesses. With nearly all sectors experiencing a deterioration of their
financial position since the last quarter, the ongoing supply chain issues and
a 30-year record for inflation are less than ideal for companies that have
already been hard hit by the pandemic.

 

"This new data, combined with the recently published Government insolvency
statistics which highlighted a 33pc rise in corporate insolvencies in December
2021 vs December 2019 demonstrates that 2022 is going to be very difficult for
many SMEs.

 

"Aggressive creditor action is often seen as a leading indicator for
insolvencies, and the 100%+ increase in CCJs demonstrates that companies are
taking a tougher line on recovering debts, in many cases to ensure their own
survival.

 

"Ultimately, these market dynamics, on top of the withdrawal of government
support measures and protection, is likely to lead to a rapid acceleration in
insolvency rates over the course of 2022 and beyond."

 

-- 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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