Dramatic fall in firms at risk of going bankrupt

THE NUMBER of British businesses experiencing extreme financial distress has plummeted during the last year, according to research released yesterday that adds to growing optimism about economic growth.

Just 3,001 UK companies experienced critical problems between April and June this year, a decrease of 39 per cent over the last twelve months, according to restructuring firm Begbies Traynor.

Most of the reduction can be attributed to substantial improvements in the construction, professional services and financial services sectors.

“With critical distress levels falling at a record pace, this quarter’s improvement appears to be the first real sign that the UK economy has turned a corner towards a sustained recovery,” said Julie Palmer of Begbies Traynor.

However, there are still 176,677 UK companies considered to have significant – but not critical – financial difficulties, the research showed.

Many of these are “zombie firms” that have deep underlying problems but have been kept alive during the financial crisis due to record low interest rates.

The report warns that many such small and medium sized companies could run out of money if the economy starts to pick up because there is “a real temptation to overtrade” after a prolonged downturn.