A new report is warning of a “wave of insolvencies” this autumn with a significant number of debt-laden “zombie businesses” in the South West - despite figures suggesting the easing of lockdown restrictions has boosted the regional economy.
According to the latest Red Flag Alert report from restructuring experts at Begbies Traynor, more than 46,000 firms in the region found themselves in “significant” distress during the second quarter of 2021 (April-June).
While that number was up by 16% on the same period in 2020, it represented a 10% drop from Q1 this year, as lockdown restrictions were eased and pent-up consumer demand was unleashed.
Of the overall regional figure, 8,500 of the distressed businesses were in Devon, with 1,472 of them in Plymouth, 1,794 in Exeter and 979 in Torbay. Although there was a 9% drop in struggling businesses from Q1 to Q2, the Devon figure was still 20% up on the same period in 2020.
Companies in distress within the South West’s real estate and property and hotels and accommodation sectors, saw a quarter-on-quarter drop of 6% and 9% respectively. Though these percentages, when compared to last year, were up 33% and 24%.
Separately, culture and leisure and food and drink businesses have also picked up, with 11% fewer businesses in distress compared to the first quarter of the year across both sectors.
Bars and restaurants have also been favouring slightly better, with 3% fewer in distress this quarter when compared to the previous one.
Despite these rises Begbies Traynor said that businesses are still facing a “tough outlook” and Paul Wood, partner at Begbies Traynor in Bristol, warned the number of “zombie businesses”, saddled with borrowing to survive the pandemic, remained considerable, with many in a “fragile state.”
Most Read
Mr Wood said: “Covid has dramatically accelerated the 海角视频’s zombie business population, with many businesses taking on unsustainable government-backed debts during the pandemic in order to survive.
“With constant changes to the 海角视频 roadmap out of lockdown, many remain in a precarious position, with any future lockdowns likely to impact insolvency rates.
“Whilst ‘freedom day’ on July 19 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.”
The South West’s fortunes reflected the national picture with Begbies Traynor’s 海角视频-wide research for Q2 recording more than 650,000 businesses in ‘significant distress’, up 24% year-on-year but down 10% from Q1 2021.
Like this story? Why not sign up to get the latest South West business news straight to your inbox.