More than 39,000 South West companies are in significant financial distress and the situation is expected to worsen, a new report says.
The latest Red Flag Alert Report, for the third quarter of 2021, shows that companies in the region are at risk from supply restraints, inflation including rising energy prices, staff shortages, and the end of Government Covid safety nets.
The report, from corporate recovery and insolvency expert Begbies Traynor, shows that nationally 562,000 businesses are in difficulty with a huge rise in court action fuelling insolvency worries.
How's the SW economy doing?
This is 15% higher than two years earlier, before the pandemic struck, but down 14% on the previous three months in 2021.
In the South West 39,870 companies are in “significant” financial trouble. Of those, 1,248 are in Plymouth, although this figure has fallen 7% on Q3 in 2020, and 15% on Q2 2021, as the majority of Covid restrictions were eased and the economy reopened.
Sectors under the most stress nationally include support services, construction and real estate and property.
In Plymouth, real estate and property tops the list for July to September, followed by bars and restaurants. Both showed 7% annual increases, but it also represents a 12% and 3% decrease between Q2 and Q3 2021.
That said, Begbies Traynor is warning there are “considerable challenges” ahead for businesses, including constrained raw material availability, rising inflation, labour shortages, spiralling energy prices and the winding back of Government Covid support measures, that could yet impact failure rates during the rest of 2021 and beyond.
Most Read
Nationally the latest Red Flag Alert research showed that, despite the Q3 improvement in the financial performance of businesses, the number of significantly distressed companies is 15% higher than pre-pandemic.
There are also concerns in a steep rise in CCJs (county court judgements), which are often a bellwether for future insolvency, Begbies Traynor said, with official data showing there were 9,101 CCJs lodged against companies during Q3 2020, rising to 21,769 during Q3 2021, a 139% uplift.
Scott Kippax, partner at Begbies Traynor in Plymouth, said: “The quarterly fall in significant financial distress is welcome news and provides some breathing space for hard hit Plymouth businesses.
“However, concerns remain that trading conditions will deteriorate for many companies, with rising CCJ figures an early indicator that some suppliers are running out of patience with customers stretching payment terms.
“Despite the summer economic boom, systematic problems remain, and many businesses face a long-term struggle with repaying Government-backed Covid loans.
“However, inflation, energy costs and labour availability may prove to be the snake in the grass for many of these businesses, particularly if they are unable to pass these costs on to their customers.
“These risks, combined with the withdrawal of Government support measures and protection, could make for a tough rest of 2021 which could also continue into 2022.”
Don’t miss
How to contact William Telford and Business Live
Business Live's South West Business Reporter is William Telford. William has more than a decade's experience reporting on the business scene in Plymouth and the South West. He is based in Plymouth but covers the entire region.
To contact William: Email: william.telford@reachplc.com - Phone: 01752 293116 - Mob: 07584 594052 - Twitter: - LinkedIn: - Facebook:
Stay in touch: BusinessLive newsletters have been re-designed to make them even better. We send morning bulletins straight to your inbox on the latest news, views and opinion in the South West. Get our breaking news alerts and weekly sector reviews too. Sign up now - it's free and it only takes a minute. To sign up for Business Live's daily newsletters click .
And visit the Business Live South West LinkedIn page
Begbies Traynor said “significant” distress relates to businesses with CCJs of less than £5,000, filed against them or which have been identified by Red Flag Alert's proprietary credit risk scoring system which screens companies for a sustained or marked deterioration in key financial ratios and indicators including those measuring working capital, contingent liabilities, retained profits and net worth. Those in “critical” distress are businesses with CCJs of more than £5,000 filed against them.
In England and Wales, CCJs are legal decisions handed down by the County Court. Judgments for monetary sums are entered on the statutory Register of Judgments, Orders and Fines, which is checked by credit reference agencies to assess the creditworthiness of individuals and businesses.