Member Article

Over 12,500 businesses in the North East now in financial distress as third lockdown bites

Across the North East, business distress has surged by 31% since the end of 2019, with more than 12,500 of the region’s firms now in financial trouble, a year-on-year increase of almost 3,000 businesses. Distress levels had also soared by 14% since the previous quarter, with a further 1,500 companies in the North East plunged into distress.

The latest Red Flag Alert research, for Q4 2020, has recorded ‘significant’ distress affecting 630,000 businesses across the UK, a 27% year-on-year increase nationally, with London experiencing a 33% rise in distress since Q4 2019.

The research, from leading business rescue and recovery specialist, Begbies Traynor, also found that, in the North East, almost all of the 22 sectors monitored by Red Flag Alert displayed a double-digit increase in ‘significant’ distress year-on-year, ranging from an 8% to a 54% rise. The picture was similarly bleak UK-wide, despite the Government’s package of interim Covid-19 financial support measures.

In the North East, some of the worst hit sectors were travel and tourism (with distress up 54% year on year and 26% on Q3 2020), hotel and accommodation (up 51% year on year and 25% quarter on quarter) and real estate and property (up 47% year on year and 19% on the previous quarter).

However, it is likely that the distress figures revealed by the Begbies Traynor research are the tip of a very large iceberg. The coronavirus pandemic has reduced court activity, limiting the number of CCJs and winding up petitions being issued against indebted companies, and there has been a ban on winding up petitions for Covid-related debts.

Gillian Sayburn, partner for Begbies Traynor in the North East, said: “The pandemic meant that 2020 was a devastating year for thousands of businesses as they fell further into financial distress and Q1 2021 seems to be offering little hope of an upturn.

“The Government’s extended furlough and financial support measures will provide some relief and should save a significant number of businesses from entering into insolvency in the short term. However, because not every business will be sustainable, the reality, even post-pandemic, is that the Government will have to be ruthless when handing out its rescue funds.”

She added: Unfortunately, for many struggling companies, Government financial help will provide little more than a stay of execution as debt levels become unmanageable and structural changes across many sectors take their toll.“

This was posted in Bdaily's Members' News section by Emma Kilmurray .