Fall in NW firms facing financial distress, though insolvencies rise
The proportion of North West businesses in financial distress has fallen by 13% during the third quarter of 2021, according to the latest research by insolvency experts, Manchester-based Begbies Traynor.
However, it also confirms that more than 50,000 firms in the region still face significant financial challenges.
The research reveals that 54,350 businesses located in the region are now operating under significant financial distress, according to the latest Begbies Traynor Red Flag Alert data for the third quarter of 2021.
The gradual re-opening of the economy and steady increase in consumer confidence is reflected in the latest figures with a 13% reduction in the number of firms in distress compared with the previous quarter. In the second quarter of 2021 there were 62,784 firms from across the region in significant financial distress compared with 54,350 in the third quarter.
Double-digit reductions in distress were seen in Financial Services (18% reduction), Professional Services (15% reduction) and Media (15%) reflecting the strength of these key sectors of the North West economy.
Some sectors of the regional economy still retain high volumes of distress in the region by sheer volume. These are Support Services (9,068), Construction (7,199) and Real Estate & Property (6,836).
Nationally, there are now more than half a million firms (562,550) that are currently in significant financial distress.
CCJ’s are often a bellwether for insolvency and the latest data paints a gloomy picture. Official data shows there were 9,101 CCJs lodged against companies during Q3 2020, rising to 21,769 during Q3 2021 – a 139% increase. This acceleration in CCJ’s was also evident between Q2 and Q3 2021 with a 51% uplift.
These figures show that court activity is picking up as creditors, especially landlords, become more aggressive in chasing debts.
Gary Lee, partner at Begbies Traynor, said: “The percentage fall in business distress across the region is certainly good news and gives directors some breathing space as they recover from the pandemic.
“However, the sheer numbers of firms still in financial peril is worrying. Every day we’re having conversations with business owners and their advisers and the same two issues keep cropping up.
“Firstly, there are huge challenges for many companies in repaying bounceback loans they’ve taken out. Secondly, creditors, including HMRC and landlords are taking an increasingly aggressive line in chasing debts.
“The pressure is still on for thousands of businesses and we’re likely to see an acceleration of insolvency rates in 2022 as funds dry up and directors have exhausted their options.”
This is supported by news that the number of corporate insolvencies seen across the North West during the third quarter rose by 24%, as inflation and supply chain pressures started to bite and government COVID-19 support measures began to unwind.
Analysis of notices in The Gazette by Interpath Advisory reveals that a total of 21 companies fell into administration or receivership from July to September 2021 – up from 17 in the second quarter of 2021, though down from the 43 seen during the same period last year.
This mirrors the national picture, which saw UK administrations and receiverships increase by 26% in the third quarter of 2021 – from 123 in quarter two 2021 to 155 in quarter three, albeit this was significantly down from the 243 appointments during the comparative period in 2020, and still at only 39% of pre-COVID levels when compared with the 401 appointments in Q3 2019.
Rick Harrison, managing director and head of the North West team at Interpath Advisory, said: “With inflation on the rise, COVID-19 support measures, including the Job Retention Scheme, now tailing off, and well publicised issues affecting global supply chains and availability of labour, it’s perhaps unsurprising that we are starting to see a modest rise in insolvency levels as we enter the final quarter of the year.”
