Despite a booming residential property market, 79,695 companies operating within the housing market were in significant financial distress in the second quarter, only 6% fewer than at the start of the year.
The latest Red Flag Alert research shows 650,000 UK businesses were in significant financial distress – the second highest level ever recorded but 10% down on the record set in the first quarter of the year, at 723,000.
Begbies Traynor’s research also found that despite the Q2 improvement, the numbers of significantly distressed companies is still 24% higher than the same time last year (651,492 v 526,967) with a 35% jump in the real estate and property services sector over 12 months.
While there has been a moratorium on court proceedings during the pandemic, the latest official figures show that activity is picking up as creditors, especially landlords, become more aggressive in chasing debts.
Official data shows that 7,617 CCJs were lodged against companies from April to June in 2020, increasing to 14,460 during the same period in 2021, a 90% uplift.
Julie Palmer (pictured), partner at Begbies Traynor, says that a reopened economy has allowed some companies to pay down some of their more critical debt in order to avoid court action.
“Covid has dramatically accelerated the UK’s zombie business population, with many businesses taking on unsustainable government backed debts during the pandemic in order to survive,” she says.
“Whilst ‘Freedom Day’ on 19th July has given many businesses a sense of normality, history suggests that unmanageable levels of debts and subsequent overtrading will eventually take their toll on these businesses.
“Yet, the last quarter has demonstrated that it is not all doom and gloom for businesses. Consumers want to spend, businesses want to expand and adaptation provides an opportunity for fresh shoots in the economy.”
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