Insolvencies set to escalate
UK insolvencies are forecast to rise next year as austerity measures start to bite, with more than 127,000 companies continuing to suffer “significant” financial distress, restructuring specialist Begbies Traynor warned yesterday.
In total the struggling companies owed £69.5m at the end of the second quarter – a rise of 26 per cent compared to the £55bn owed for the first three months of 2010, according to Begbie’s latest Red Flag Alert report covering the second quarter.
Averages debts of trouble companies have surged 60 per cent to £545,000 over the quarter – a statistic Begbies believes suggests that the post-recession stress is migrating out of the SME sector to larger businesses.
Ric Traynor, executive chairman of Begbies Traynor Group, warned that once the coalition government’s fiscal tightening measures kicked in from the first half of 2011 the number of insolvencies would rise.
“The levels of distress can be expected to remain pronounced for a number of successive quarters in line with the experience of recessions over the past 35 years, when the level of insolvencies grew strongly for two to four years after GDP stopped shrinking,” he said.
Begbies, which helps salvage struggling companies, issued the report at the same time as raising its final dividend by 12 per cent to 1.9p, giving a total payout of 3.1p for the year.
The company said activity levels for the first two months of the new year were slightly ahead of the last year. Begbies maintained its outlook for the current year.
In the year to the end of April, Begbies reported an adjusted pre-tax profit of £10.4m, compared with £9.8m a year ago.