The number of UK companies in financial distress has surpassed half a million, underlining the threat of a wave of business collapses from the coronavirus crisis.
Distressed companies increased 3 per cent to 506,946 in the first quarter of this year, according to figures from Begbies Traynor, the corporate restructuring business.
Begbies said that they were up 45 per cent since the start of 2014 when it began compiling comparable statistics and that if only 5 per cent of these companies went into insolvency it would mean an additional 25,000 insolvent companies. That compares with a total number of corporate insolvencies last year of 17,196, according to the Office for National Statistics.
The pandemic has forced governments to impose extraordinary restrictions that threaten a sharp recession and have hammered global markets, businesses and employees.
Those sectors most at risk, Begbies found, include real estate and property, with a 15 per cent increase year-on-year in distressed companies; sports and health clubs, with a 7 per cent rise; hotels and accommodation, rising 6 per cent; and food and beverages, up 7 per cent.
Consumer-facing industries such as leisure, retail and travel have been among those most exposed to coronavirus. The government took the unprecedented action on Friday night of ordering cafés, pubs, bars and restaurants to close.
Begbies defines distressed companies as those with minor county court judgments of less than £5,000 filed against them, or those that have been identified by Begbies’ proprietary credit risk scoring system, which “screens companies for a sustained or marked deterioration in key financial ratios and indicators, including those measuring working capital, contingent liabilities, retained profits and net worth”.
Julie Palmer, partner at Begbies, said there were 500,000 distressed companies even before coronavirus had taken its toll on the economy, accounting for about 14 per cent of UK businesses.
She said they expected the number of distressed companies to rise sharply in the third quarter of the year. “It’s a little bit like a war. When you’re at war, people come together and try to help. It’s when you’re emerging from that war that it’s dangerous for businesses.”
