562,000 UK Businesses are in Financial Distress in Quarter 3 2021

The latest research for quarter 3 2021 from Red Flag Alert, which monitors the financial health of UK businesses, has shown there 562,550 businesses in ‘significant financial distress1’, with a 139% uplift in County Court Judgement’s in the past year.

• 562,550 UK businesses in significant financial distress during Q3 2021– this is actually a 14% decrease over the last quarter
• 139% rise in CCJ’s during Q3 2021 as businesses are able to use the courts to recover debts again
• 17% rise in more serious critical business distress in the past quarter

However, the number of businesses in significant financial distress has fallen 14% since Q2 2021. This fall can most likely be attributed to rising corporate revenues as pent-up customer demand has fuelled a boom in spending and allowed some companies to improve their short term debt position, whilst improving cashflow.

This may have eased the immediate threat to many companies’ survival but there is uncertainty if these trading patterns will continue in the future.

There are also considerable challenges which lay ahead for UK businesses, including raw material availability, labour availability, the predicted rise in inflation,  rising energy prices, and these, combined with a winding back of government support, could affect business failure rates in Q1 2022 and beyond.

What’s to come

County Court Judgement’s are often a sign of things to come in insolvency and the latest figures show the outlook to be more difficult. Official government figures show there were 9,101 CCJs lodged against companies during Q3 2020, rising to 21,769 during Q3 2021, a 139% uplift. This rise in CCJ’s was also evident between Q2 and Q3 2021 with a 51% increase.

The latest official data show that court activity is picking up as creditors, become more aggressive in chasing outstanding debts having been unable to during a large portion of the pandemic.

The research from Red Flag Alert also found that despite the Q3 improvement in the financial performance of businesses, the numbers of significantly distressed companies is still 15% higher than pre-pandemic levels (488,934 – Q3 2019, 562,550 – Q3 2021).

The top 10 distressed business sectors

Support services – 87,694
Construction – 72,465
Real estate and property – 70,552
Professional services – 39,095
Telecoms – 36,307
General retailers – 35,107
Health and education – 31,810
Media – 23,499
Bars and restaurants – 20,552
Manufacturing – 20,269

Rick Smith, Managing Director at Forbes Burton, said:

“The UK economy is recovering quite quickly. However, it may not be as good as it seems as rising CCJ figures are a cause for real concern.

“Despite the summer economic boom, there are still plenty of problems that remain, and we’ve seen that many businesses are finding it difficult to pay back government COVID loans. Inflation, rising energy costs, and finding labour are becoming big problems for many of these businesses, particularly if they are unable to pass these costs on to their customers who are also feeling the effects of some of these problems and more.”