More than 14,000 North East businesses are showing signs of financial distress, according to the latest data.
The figure - a rise of 43% from this time last year - has sparked a warning that Government measures sparked by the pandemic and delays to the court system are protecting many businesses from entering insolvency but potentially storing up problems for companies later in the year.
Begbies Traynor's Red Flag Alert found that the number of companies showing early signs of financial distress is on the rise, with 14,400 businesses in the region now affected.
During the first quarter of 2021, the number of North East companies in "significant" distress rose by 16% compared with the last three months of 2020. Significant distress indicates that a business is showing early signs of financial problems.
In better news, the number of businesses in the more advanced "critical" distress bracket is on the decline. Businesses in critical distress have had winding up petitions or CCJs totalling more than £5,000 held against them.
The number of firms in critical distress fell by 3% compared with the previous quarter and was down 25% year-on-year.
Commenting on the findings, Gillian Sayburn, a partner at Begbies Traynor in the North East, said: “After more than 12 months of multiple lockdowns and restrictions, the true extent of the financial pressures facing businesses is still largely being hidden by the Government’s insolvency prevention measures which makes these latest figures even more concerning.
“While there has been a marked reduction in advanced distress in the last quarter, this has been overshadowed by the escalation in signs of early distress. Although the Government has been successful in delaying liquidations and bankruptcies, there is still an enormous amount of financial trouble brewing, much of which will emerge later in the year when these and other support measures come to an end.
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“Added to this, the courts are still struggling to catch up with the backlog and so there are likely to be many more actions against indebted companies in the pipeline.”
Nationally, there was a 42% rise in levels of businesses in early distress compared with the same period in 2020, which was before the pandemic struck.
Significant distress rose by 15% over the last three months, with 722,551 businesses experience this type of distress.
More advanced stages of distress fell by 32% compared with the first quarter of 2020 but remained at the same levels as the last three months of the year.
In the North East, one of the hardest-hit sectors was financial services, which experienced a 68% rise in the early signs of distress compared with the first quarter of 2020. Other sectors such as utilities and real estate also suffered.
Andrew Little, partner for Begbies Traynor in the North East, added: “Beleaguered businesses in the 海角视频 are facing a number of challenges including the threat of further waves of the COVID-19 pandemic, together with the disruption caused by Brexit.
"Concern that the Government’s financial support could be propping up unviable ‘zombie’ businesses is also growing, and, once this aid ends, there will be a flood of insolvencies. These heavily indebted and weak companies actually have a negative impact on the economy, using investment which could support the growth of other, nimbler companies.
“While it is good news that the 海角视频 economy is opening up, businesses in the region should prepare for some tough times ahead.”