Increase in number of UK businesses in “significant” financial distress

Reviewing the final quarter of 2022, the report outlined how much of this has been driven by a combination of legacy Covid debt, inflation and greater pressure on consumers who are reining in spending, as well as increasing the levels of significant financial distress across UK companies. 

This has resulted in a four percent rise of those in financial distress when compared to the same period a year ago. Additionally, there was an 11% rise in critical and 24% surge in significant distress levels when compared to the final quarter of 2019, highlighting the legacy impact of Covid debt and rising inflation.  

Begbies Traynor partner Julie Palmer said: “What we are hearing from directors of businesses is extremely distressing. 

“We came into 2022 hopeful that the pandemic was fully behind us and better times were ahead, only for Russia’s invasion of Ukraine to unsettle the global economy, leading to spiralling inflation and soaring energy bills and laying the foundations for what looks like a global recession. In the UK, in particular, strikes are just piling on the pressure as staff struggle to get to work and customers stay away. 

“We’re taking calls from company bosses who are having trouble digging deep enough to keep battling on. They are already having to pay back the support they took to get through Covid and, anecdotally, we are hearing that both the government and HMRC are becoming more determined in pursuing debts, while other creditors are increasingly turning to the law to recover their debts. 

“Throw in a such a gloomy economic outlook, with inflation at 40-year highs and interest rates at levels not seen for 14 years, and you can see why more and more companies are starting to feel the burden of their debts, making directors question whether they can go on.” 

Overall, the data revealed there was a 36% increase in the number of companies rated as being in “critical financial distress” in the final quarter of 2022 when compared to the same period in 2021 and 10% higher than then the preceding three-month period – the sixth consecutive quarter these levels have risen.  

In addition to this, the Red Flag Alert found there are 610,405 businesses across the UK rated as being in “significant financial distress” - a rise of four percent on the final quarter of 2021.  

County Court Judgements (CCJs) are also climbing rapidly, with 23,885 CCJs in the fourth quarter of 2022 – a 52% rise in the level compared to the same period a year ago. Winding up petitions, meanwhile, totalled 576 during the same period – a rise of 131% compared with 2021.  

Begbies Traynor’s chairman Ric Traynor said: “Although we are - hopefully - about to pass the peak of inflation and the UK looks to have avoided recession at the end of last year, the strain is very clearly showing on businesses, as insolvency rates accelerate. 

“Interest rate hikes look set to continue into the second quarter of 2023 placing further strain on the finances of both businesses and consumers. This, combined with a far less generous business energy support scheme and legacy Covid debts, do not bode well for many SMEs, and I fear that failure rates will continue to rise well into 2024.”