Wednesday, September 23, 2020

Rise in business distress for Yorkshire businesses despite COVID aid from government

Financial problems among Yorkshire businesses increases by 8% to affect over 31,000 firms in Q2 2020 compared with the previous year, research has revealed.

The Red Flag Alert data from Begbies Traynor reveals that in Yorkshire 2,000 more businesses were in financial trouble by the end of June this year than at the same time in 2019.

The rise in business distress comes despite government efforts to protect business from the effects of lockdown.

The 8% increase in ‘significant’ business distress, referring to businesses with relatively minor financial problems, such as having CCJs of less than £5,000 filed against them, or showing a marked deterioration in key financial indicators, is expected to rise significantly in the coming months.

Temporary court closures during the pandemic are feared to be holding back a flood of businesses that are likely to fall into deeper financial distress.

Across the UK, distress rose by 9% year on year to affect 527,000 businesses. With 33,000 more firms in trouble than at the start of this year, the Red Flag Alert research has now recorded seven consecutive quarters of increasing distress, marking the longest period of increased distress since the start of 2014.

Julian Pitts, Begbies Traynor’s regional managing partner for Yorkshire, said that despite increases in business distress that were already being felt, the more severe effects of the pandemic were unlikely to become apparent until Q3.

“Unfortunately, although more than 600 more Yorkshire businesses have fallen into financial distress since the start of the pandemic, the true severity of the situation is being concealed by inaction on insolvent and distressed businesses in the courts,” he said.

“With government initiatives to rescue businesses winding down, and others to get companies started again being rolled out, we will imminently begin to see the real impact of coronavirus on the UK. Businesses will be fighting against a rising tide of distress and the situation is likely to get worse before it gets better.”

Of the business sectors in Yorkshire demonstrating the biggest increases in distress in Q2 2020 compared to Q2 2019, real estate and property services was the hardest hit, with a 15% rise and 3,240 businesses affected in the region. This was closely followed by the printing and packaging industry (at 14%), food and drink, and industrial transport (at 12%). Bars and restaurants, retail and media all saw an 11% rise in distress on Q2 2019.

Mr Pitts added: “If they are to survive, those firms that have the capital and the ability need to restructure, on the assumption that the world we now live in is here to stay. They cannot afford to operate on the unrealistic hope that a return to normality is just around the corner.”

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