The £55bn problem: rise in corporate strugglers dampens recovery hopes

The number of UK companies in financial difficulties is actually going up, not down, a new report says.

Last Updated: 06 Nov 2012

The economy may be showing signs of recovery, but we shouldn’t be fooled into thinking that the worst is over, according to Begbies Traynor. In its latest ‘red flag’ update, which monitors the warning signs of companies in distress, the insolvency expert reports that the number of companies experiencing severe financial problems topped 160,000 in the first quarter of 2010 – 14% up on the same period last year. Admittedly this is partly because creditors are starting to take a harder line on the billions in debts that are still outstanding. But it just goes to show that UK plc isn’t out of the woods yet...

Begbies (home of MT’s esteemed blogger Nick Hood, who you have heard on the Today programme this week) found that 161,601 companies are currently experiencing what it calls ‘significant’ or ‘critical’ financial distress, with many several thousand pounds in the red. Collectively, they now owe over £55bn to creditors, suppliers and service providers. And it appears things are getting worse, rather than better: this is the second consecutive quarter of increases in the number of problem companies. Oh dear.

Not everyone is suffering to the same extent. The car industry, for example, seems to be faring the best, with the number of companies experiencing significant or critical financial problems up just 4% on last year. That may not sound great, but it’s a lot better than the property services sector, where the number of distressed firms rose 42%; or retail, which saw a 20% rise. Somewhat predictably, the weather copped some of the blame for the latter's poor performance. (No doubt some firms will suffer from the ash cloud this quarter too.)

The chances of your company getting into bother also vary quite markedly depending on where in the country you’re based, Begbies found. Scotland was the worst affected region, with the number of companies in difficulty up 18% on the previous three months. At the other end of the spectrum (perhaps surprisingly), the West Midlands was the best performing region: here the number of ailing companies was up by just 7%.

So why is the picture still looking so bleak? Begbies reckons creditors’ new-found willingness to take firms who owe them money to court is a big factor – as is the withdrawal of the government support measures put into place early last year. And unfortunately, we shouldn’t expect the situation to improve any time soon: Begbies Traynor reckons a rise in interest rates (which many economists are predicting, thanks to the inflationary effect of all that money pumped into the economy lately) may tip more businesses over the edge. Let’s hope they’re wrong.

In today's bulletin:

Politicians deny misleading us over deficit - as Greece slips again
Shell profits rise by 50% as cost-cutting begins to pay off
Our clients can look after themselves, Goldman insists
Editor's (guest) blog: 'My Peppa Pig hell' by Marnie Gwyther, aged 11 months
The £55bn problem: rise in corporate strugglers dampens recovery hopes

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