The UK is facing a wave of corporate bankruptcies as bankruptcy experts warn that the number of companies in “financial distress” has risen by more than a third.
A “disturbing warning” from bankruptcy firm Begbies Traynor says the tax authorities are chasing debt over Covid support, pushing many small businesses to the edge of administration.
It also highlights “the intense pressure that a growing number of businesses are facing as they are impacted by rising labor and material costs, higher energy bills and an economy that could slide into recession.”
She added that the delays in the justice system caused by the pandemic are one of the reasons why more businesses and workers have not yet been affected.
According to the report, in the last three months of 2022, the number of problem companies increased by 36 percent compared to the same period last year.
A company is in financial distress if it has more than £5,000 in District Court (CCJ) judgments or winding up orders against the company. The number of CCJs issued against companies in the last quarter of last year increased by 52% compared to last year.
In the same period, there were 576 dissolution applications, a more serious legal challenge, up 131 percent from 2021. A total of 610,405 UK companies are classified as in financial distress, up 4% from the previous year.
Julie Palmer, Begbies Regional Managing Partner, said: “We are taking calls from leaders who are struggling to dig deep enough to keep fighting.
“They are already having to repay the support they have received to cope with Covid and, oddly enough, we are hearing that both the government and HMRC are becoming more assertive in debt collection, while other creditors are increasingly turning to the law. to help collect your debts. debts. .
Add to that the economic outlook so bleak, with inflation at its highest level in 40 years and interest rates at levels not seen in 14 years, and you can see why more and more companies are feeling the brunt of their debt. move on.”
The hospitality sector was particularly hard hit, with financial distress increasing by 157 percent. Problems with energy costs were widespread and the report included concerns that bankruptcies in the sector could increase after April due to cuts in government support.
The delay in bankruptcy courts due to Covid has also delayed some crashes. “The courts were closed for work, so no one could fix the situation,” Ms Palmer said.
The government has approved more than 1.6m loans worth £80.3bn during the pandemic. The equivalent of 28 percent of firms have taken advantage of one of several Covid support schemes, most of which (98 percent) were revolving loans.
Last year, the government said more than 85 percent of its loans were either fully repaid or monthly payments were on schedule. She added that only 8 percent of the loans were not repaid.
Source: I News
I am Moises Cosgrove and I work for a news website as an author. I specialize in the market section, writing stories about the latest developments in the world of finance and economics. My articles are read by people from all walks of life, from investors to analysts, to everyday citizens looking for insight into how news will affect their finances.