Begbies Traynor releases its Q2 2010 Red Flag Alert statistics
The leading business rescue, recovery and restructuring specialist, Begbies Traynor, releases its Red Flag Alert Statistics for Q2 of this year, which monitor the early signs of company distress. The key headlines are as follows:
- The number of businesses facing financial distress has fallen by 21% since Q1 2010
- The £69.5bn of liabilities at risk of default is up 26% from £55bn in Q1 2010
- Average debts of troubled companies have risen 60% to c. £545,000 in Q2 2010 (Q1 2010: c.£340,000)
- 52,000 companies already experiencing distress in the sectors most dependent on public sector spending (construction, IT, recruitment, advertising and business services)
- Outlook for corporate credit availability for Q2 2010 at its lowest level since the end of 2008
- Begbies Traynor expects the levels of insolvencies to rise again in H1 2011
Over 127,000 companies experienced ‘significant’ or ‘critical’ financial distress in Q2 2010 between them owing over £69.5bn to creditors, suppliers and service providers.
Although the numbers of companies experiencing distress have fallen (by 21% compared to 161,601 in Q1 2010 and by 31% compared to previous peak levels of 185,813 in Q2 2009), they remain at historically high levels (up 15% from 111,089 in Q2 2008).
The £69.5bn of liabilities at risk of default by businesses experiencing financial distress has increased by 26% from £55bn in Q1 2010, representing a 60% increase in the average debts of troubled companies to c.£545,000 (Q1 2010: c.£340,000). This suggests that larger companies are now experiencing difficulties, implying that the post-recession stress is migrating out of the SME sector to affect more significant businesses and therefore, potentially threatening greater job losses; indicating the continued fragility of the UK’s weak economic recovery.
Ric Traynor, Executive Chairman of Begbies Traynor Group, said:
“We believe that a combination of lenient creditor attitudes and temporary government support measures, including the extensive use of monetary instruments, such as quantitative easing and low interest rates, have all had an effect on reducing the volume of adverse actions, providing a welcome respite to many companies that may have otherwise found it difficult to survive.”
Traynor added: “However, we are concerned that the levels of business distress will increase again, potentially from the first half of 2011, once the full effects of the coalition government’s fiscal tightening measures impact the economy and particularly amongst those private sector businesses most dependant on public sector contracts. Thereafter, the levels of distress can be expected to remain pronounced for a number of successive quarters in line with the experience of recessions over the past 35 years, when the level of insolvencies grew strongly for two to four years after GDP stopped shrinking.”
For full story see Latest Red Flag Statistics