Begbies warns on zombie firms with 557,000 in distress

Manchester-based corporate rescue giant Begbies Traynor Group plc said on Thursday its latest Red Flag Alert research for the third quarter of 2020 recorded 557,000 UK businesses in “significant distress” after the largest quarterly leap in financially distressed companies since 2017.

“This 6% increase (from 527,000 in Q2 2020) in the last three months comes despite a backlog of court action preventing many CCJ’s (County Court judgments) and winding up petitions being issued,” said Begbies Traynor.

“This newly published research from Begbies Traynor, also finds that there has been a 9% increase in significantly distressed companies since the end of the first quarter (509,000 Q1 2020, 557,000 Q3 2020) – two weeks into lockdown.

“Since this time there have been double-digit percentage increases in financial distress in 10 out 22 sectors analysed.”

Begbies Traynor partner Julie Palmer said: “It is noteworthy that the number of businesses in significant distress have grown substantially in the last three months, even with court capacity significantly reduced due to the pandemic.

“With so many businesses limping along there could be a flood of insolvencies when the courts do get back to anywhere near normal capacity and attempt to clear the backlog of pending cases.

“This in itself, combined with the end of the furlough scheme and other government support measures is likely to have a material impact on the UK business failure rate.

“Unfortunately for the many zombie companies in existence across the UK, a perfect storm is on the horizon.

“A combination of a grim economic data, and very poor trading conditions, particularly in the most vulnerable sectors, such as hospitality will take its toll and this is expected to feed through to Q1 2021, particularly when the government ends its high profile corporate life support measures …”

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Mark McSherry
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