The latest Begbies Traynor Red Flag Alert research reveals a 19% jump in the number of companies in critical financial distress with Government Covid support having ended 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, warns that unless there is action to allow struggling businesses to mitigate the impact of these pressures, they risk being unable to continue to operate. She said: “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 racked 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.”