Region has fewer troubled firms but Begbies warns of more failures ahead

MANCHESTER-based insolvency specialist Begbies Traynor is warning that that more than 50,000 firms are at trisk of failure once the government announces its spending cuts next week.

The firm has published its latest Red Flag Alert which states that more than 123,000 companies, who owe a total of £57.5bn to creditors, are showing “significant” or “Critical ” signs of financial distress nationally even prior to the majpor public sector budget cuts that are expected to be announced next week. The company is also reporting a rise in the number of winding-up petitions being issued by HMRC as it hardens its stance on companies that owe money to it and looks to claw back tax revenues.

Despite this, however, figures for the region show that the number of firms showing signs of financial difficulty actually reduced in the third quarter compared with the same period last year. The number of firms showing “significant” problems – those with either a court action against them for unpaid debts or showing poor, insolvent or out-of-date accounts – dropped by 13.3% to a monthly average of 4,482. Meanwhile, those judged to have had “critical” problems – firms with CCJs totalling more than £5,000 or facing winding-up petitions – dropped by 36% to an average of 13.3%.

In Manchester, , the average number of firms with “significant” problems dropped 7.3% to 851 and the number of firms in the “critical” category fell by 26% to 28.

In Liverpool, the respective drops were 10.4% in the “significant” category and 35% in “critical”.

Gary Lee, Partner at Begbies Traynor in Manchester, said: “So far Government initiatives have to some degree been effective in providing a buffer for corporate failures. Only time will tell whether it has been a success or simply a stay of execution for unhealthy businesses built on a foundation of debt; the recent slowdown in the rate of recovery could suggest the latter.”

John Fairbrother, Partner at Begbies Traynor in Liverpool said: “It is encouraging to see that Liverpool, compared with its North West neighbours, has experienced the most significant fall in the number of companies facing critical problems. However, we are far from out of the woods yet and next week’s Comprehensive Spending Review will set the scene for how the fourth quarter will play out.

“Confidence in Liverpool’s construction sector remains low which is reflected in our figures where this sector accounts for almost a quarter of companies facing critical problems. Further public sector spending cuts are unlikely to improve this situation and immediate action is required for those already feeling the pinch. The slowdown in the rate of recovery could suggest that Government measures have postponed further company failures. But there is now evidence to suggest a toughening approach by HMRC – increasingly calling time on unpaid tax debts to increase revenues.”

Begbies Traynor’s executive chairman, Ric Traynor, believes that consumer-facing industries such as retail, travel and leisure could be hardest hit as both the cuts and the forthcoming rise in VAT put pressure on disposable income.

“With recent evidence of house price reductions, falls in consumer credit and lower savings ratios, we expect a combination of deteriorating consumer confidence and financial resources to result in growing numbers of business failures in those sectors most exposed to discretionary spending.

“Whilst the retail sector may benefit from a short term boost as consumers purchase bigger ticket items ahead of the VAT rise in January, we expect to see a significant rise in failures in the sector from the first quarter of 2011.”