The number of financially troubled businesses has jumped by a quarter in the past year to 650,000, according to insolvency specialists.
Begbies Traynor said that while businesses have benefited from the end of the lockdown, “constant changes” in the government’s roadmap have left many businesses struggling to survive.
The new insolvency advisers report finds that there has also been a surge in the number of ‘zombie’ companies that have taken on unsustainable debts through Covid loan programs that they cannot repay.
Companies that have taken out loans through the Bounce Back and CBILS devices must now make their first repayments, 12 months after having taken on debt at the height of the pandemic.
The report provided evidence that companies that have been protected from insolvency by emergency measures put in place during the pandemic may soon be faced with demands for debt repayment.
Official figures show that court activity is accelerating as creditors, especially homeowners, become more aggressive in pursuing debts, Begbies said.
The companies received 14,460 county court judgments in April, May and June, nearly double the number filed in the same period last year.
The government has yet to explain how it will deal with the billions of pounds of debt accumulated during the pandemic that analysts say could hamper economic recovery.
Julie Palmer, partner at Begbies Traynor, said many businesses remained in fragile condition, despite the removal of restrictions on July 19.
“Although the reopening of the retail and hospitality sector gave the economy a boost in the second quarter, the number of zombie businesses remains significant, many of them in fragile condition,” said Mrs. Palmer.
“While ‘Freedom Day’ on July 19 gave many businesses meaning or normalcy, history suggests unmanageable debt levels and subsequent surges will eventually wreak havoc on those businesses. “
The researchers used a rating system that selects companies for a sustained or marked deterioration in key financial ratios and indicators, including working capital, contingent liabilities, and the amount of profit they retained.
Ric Traynor, executive chairman of Begbies Traynor, warned companies face sustained debt levels for years to come
“Hidden risks abound for UK businesses and all pose a real threat to business survival in the short term,” he said.
Among these, there is a shortage of supplies that has affected, among others, car manufacturers, electronics companies and building traders.
The absence of staff due to self-isolation and the limited availability of foreign / migrant labor due to Covid and Brexit is also having an impact, Mr Traynor said.
He predicts that these factors mean that the number of companies going insolvent will likely increase in the later months of this year and into 2022.
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This notice was published: 2021-07-28 09:25:28