The research highlights the intense strain an increasing number of companies are under as they are hit by rising labour and materials costs, higher energy bills, and an economy likely heading into recession.
In total, some 610,405 businesses across the UK rated as being in 'significant financial distress', of which 18,905 are in the restaurant and bars category.
“What we are hearing from directors of businesses is extremely distressing,” says Julie Palmer, partner at Begbies Traynor.
“We came into 2022 hopeful that the pandemic was fully behind us and better times were ahead, only for Russia’s invasion of Ukraine to unsettle the global economy, leading to spiralling inflation and soaring energy bills and laying the foundations for what looks like a global recession.
“In the UK, in particular, strikes are just piling on the pressure as staff struggle to get to work and customers stay away.”
Data from this latest Red Flag Alert research reveals a 36% increase in number of companies rated as being in 'critical financial distress' in the final quarter of 2022, compared to the same period a year ago, and 10% higher than in the preceding three-month period.
This is the sixth consecutive quarter that businesses in critical distress levels have risen.
County Court Judgements (CCJs), seen as a leading indicator of financial distress, are also climbing rapidly. There were 23,885 CCJs in the final quarter of 2022, a 52% rise in the level compared to the same period a year ago.
Winding Up Petitions, a much more serious legal action lodged by creditors, totalled 576 in the same period, a rise of 131% compared with 2021.
“We’re taking calls from company bosses who are having trouble digging deep enough to keep battling on,” continues Palmer.
“They are already having to pay back the support they took to get through Covid and, anecdotally, we are hearing that both the Government and HMRC are becoming more determined in pursuing debts, while other creditors are increasingly turning to the law to recover their debts.
“Throw in a such a gloomy economic outlook, with inflation at 40-year highs and interest rates at levels not seen for 14 years, and you can see why more and more companies are starting to feel the burden of their debts, making directors question whether they can go on.”
