(Alliance News) - Business recovery company Begbies Traynor Group PLC on Thursday said its latest Red Flag Alert showed 630,000 UK businesses in 'significant distress' in the fourth quarter of 2020, up 13% from 557,000 in the third quarter and 28% from a year before.
The research by the Manchester-based firm found that every one of the 22 sectors monitored showed an increase in the number of significantly distressed companies in the final quarter, with 18 sectors showing double-digit increases. The number of distressed companies in real estate and property services was up by 39%, in financial services by 38%, and in hotels and accommodation by 32%.
"However, it is likely that these figures are the tip of a very large iceberg. The coronavirus pandemic has reduced court activity limiting the number of [county court judgments] and winding up petitions being issued against indebted companies and there has been a ban on winding up petitions for Covid-related debts," Begbies Traynor said.
Julie Palmer, a partner at Begbies Traynor, commented: "Without the financial aid and support measures that the government has put in place during the pandemic insolvency levels would have been much higher; however the sad truth is that for many companies this will provide little more than a stay of execution as debt levels become unmanageable and structural changes across many sectors take their toll.
"The announcement of the latest national lockdown will do little to help and even the chancellor has reiterated that he cannot save every business. And the harsh reality is that the government will have to be ruthless when handing out rescue funds, because not all businesses will be sustainable, even when the flood waters subside."
Added Executive Chair Ric Traynor: "There are many zombie businesses that have been hanging on by a thread for years before this pandemic. The period post government support may well see a shake out of these struggling businesses and ultimately leave the stronger businesses to grow and create a more robust and dynamic economy in the medium term."
Begbies Traynor shares were down 0.9% at 116.00 pence in early London trade on Thursday, though the stock is up 25% so far in 2021.
By Tom Waite; thomaslwaite@alliancenews.com
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