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Soaring distressed property firms are ‘just tip of large iceberg’

Despite the booming housing market the whole property sector – a key indicator of the economy’s performance – has seen 11,000 additional businesses enter significant distress in the past three months.

In total there are over 53,000 property businesses classified this way.

The figure – from corporate business recovery service Begbies Traynor – is 39 per cent up on late 2019.

Construction businesses have also seen an impact, despite activity being able to continue during lockdowns. There are now 80,018 construction businesses in significant distress, a year-on-year increase of 27 per cent.

A company classed as being in ‘significant distress’ is one with minor county court judgements of less than £5,000 filed against them, or which have been identified by Red Flag Alert’s credit risk scoring system which screens companies for a sustained or marked deterioration.

Across the economy as a whole some 630,000 businesses are now in significant distress – there were increases in the past three months in all 22 sectors analyses by Begbies Traynor.

But the company warns: “However, it is likely that these figures are the tip of a very large iceberg. The pandemic has reduced court activity limiting the number of CCJs and winding up petitions being issued against indebted companies and there has been a ban on winding up petitions for Covid-related debts.”

Julie Palmer, partner at Begbies Traynor, says: “These figures give an insight into some of the financial stresses that have been building in UK business. Without the financial aid and support measures that the government has put in place during the pandemic insolvency levels would have been much higher, however the sad truth is that for many companies this will provide little more than a stay of execution as debt levels become unmanageable and structural changes across many sectors take their toll.

“The announcement of the latest national lockdown will do little to help and even the Chancellor has reiterated that he cannot save every business. And the harsh reality is that the government will have to be ruthless when handing out rescue funds, because not all businesses will be sustainable, even when the flood waters subside.

“Although the government has extended its Covid-19 financial support, this simply won’t be enough for thousands of businesses who likely will not survive in the interim. Although the UK’s announcement of a trade deal with the EU and the roll-out of Covid-19 vaccines offer some light at the end of a very dark tunnel, the situation is going to remain bleak over the next quarter and beyond.”

Meanwhile redundancies – both actual and predicted – continue to mount across the wider economy.

Employers planning to cut 20 or more staff have to notify the Insolvency Service of their plans ahead of the redundancies actually happening. These notifications give an earlier indication of the state of the labour market than data published by the Office for National Statistics, which appear with a time lag of a few months.

Insolvency Service figures showed record levels in redundancies in June and July, which was confirmed when the ONS published its own figures three months later. The latest data, for the period from August to October, saw a record 370,000 redundancies across the UK.

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