Companies in ‘critical’ distress increase

THE number of Yorkshire companies facing ‘critical’ financial distress leapt by 14% over the first quarter of 2010, according to the latest Begbies Traynor Red Flag update.

According to the research, 14,317 companies in Yorkshire and the North East were in a ‘critical’ position, compared to 12,612 over the final quarter of 2009.

Those in ‘significant’ financial distress in the region decreased from 16,520 to 14,317, a drop of 13%.

Begbies Traynor said that its figures for the whole of the UK indicated the UK economy appeared to have turned the corner but that the recovery remains fragile, with more than  160,000 companies experiencing ‘significant’ or ‘critical’ financial distress. 

Between them they owe over £55bn to creditors, suppliers and service providers, according to the figures released today by the business rescue, recovery and restructuring specialist.

In its latest Red Flag update, which monitors the warning signs of companies in distress, the  number of companies experiencing significant or critical financial problems has risen by 20,074 or 14% to 161,601 in the first quarter of 2010.

Ric Traynor, executive chairman of Begbies Traynor, said: “While the economy appears to be showing positive signs of recovery, the magnitude of the liabilities still at risk of default represents a serious risk to creditors, indicating the potential far-reaching impact of these levels of distress. It is this ripple effect which represents a real threat to a sustained economic recovery.

“Faced with these risks, and a growing need to bolster their own funding for the recovery phase, trade creditors are increasingly seizing the opportunity to take action against their debtors in order to raise much needed working capital. This shift in behaviour heralds a new phase in the cycle, putting businesses experiencing financial problems at greater risk of failure.”

Mr Traynor added: “Low interest rates have been one of the principal reasons why business failures have not yet reached the peak levels many feared this savage recession would cause.

“A rise may tip more struggling businesses over the edge later in the year and through into 2011, especially in the embattled but vital SME sector which cannot afford the protection of sophisticated interest rate hedging.”

Across the Uk, the sectors worst affected in the first quarter of 2010 included construction, professional services, property services, recruitment and retail.