Distress rates ‘level off’ for NW firms, but dangers lurk ahead for 55,000 companies

New data published today (August 5) by Manchester-based insolvency experts Begbies Traynor indicates a short-term levelling off in distress rates for North West firms as company directors fight hard against the impact of spiralling inflation.

However, Begbies says that, despite the small increase in the number of firms entering significant financial distress during the past quarter (67), more than 55,000 businesses are on the brink.

It also found that 250 firms were in ‘critical distress’ in the second quarter of 2022 – a year-on-year increase of 36%, up from 184.

The Red Flag Alert data has analysed the health of companies across the region for the past 15 years.

Today, it confirms 55,183 remain in ‘significant distress’ with 23,516 being from Greater Manchester and 8,893 from the Liverpool City Region. This is a 12% drop on the same period last year (62,784) which followed a period of national lockdown.

The biggest falls in levels of significant distress amongst North West firms over the past 12 months have been in the food and drug retail sector (19% reduction), health and education (19%) and wholesale (18%) as demand in these sectors continues to increase in the post-pandemic era.

Real estate and property (7,455), construction (7,441) and support services (9,005) were the three sectors that contained the highest volumes of distressed firms from the 22 analysed in the second quarter of 2022.

Nationally, more than half a million firms are now in significant financial distress (582,452).

Gary Lee, partner at Begbies Traynor, said: “It will be a relief for many businesses to see a levelling off in distress rates in the past quarter, but it remains to be seen whether this trend continues and company directors should remain cautious.

“The 36% rise in the number of firms entering critical distress in our region is alarming.

“Many businesses have been agile in their response to rising inflation and, hopefully, will have planned for costs of raw materials in particular to continue rising during the remainder of this year.

“Smart directors have used the opportunity since the start of the year to look at their banking facilities and debt arrangements and have been proactive in restructuring their debts and operations.”

He added: “Ambiguity over which tax policies will be enacted in the UK looks set to continue until September when the new Prime Minister will be confirmed, but we’ll already be most of the way through the third quarter by that point.

“As well as uncertainty over domestic politics, there’s the international aspect to consider, including the situation in Ukraine and the increasing cost of energy as we progress into autumn and winter.

“Labour shortages and supply chain issues may also have an impact on the bottom line for a lot of companies and the working capital and cash availability will need to be monitored closely.

“Given these circumstances, it would be wise for company directors to stay alert during the remainder of the year and act quickly and decisively in the event of a sudden cashflow squeeze or demands from creditors.”