Friday 24 July 2020 9:17 am

'Zombie' firms set to fail as pandemic leaves 527,000 businesses on cliff-edge

Save our SMEs

A record 527,000 businesses were in significant financial distress at the end of June, an increase of 33,000 since the beginning of the year.

It represents a seven per cent increase since the start of the year, and nine per cent year-on-year, according to new research from corporate restructuring firm Begbies Traynor.

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While the coronavirus pandemic has pushed a number of companies to the brink, it has actually reduced court activity and thus the number of County Court Judgments (CCJ) and winding up petitions.

“Significant” distress is businesses with minor CCJs, of less than £5,000, filed against them.

Begbies Traynor partner Julie Palmer said: ” This crisis will force many zombie companies out of business. While these were clinging on to survival prior to the pandemic, many will now have become simply unviable due to high levels of debts and poor sales.”

And it is likely that the impact of the pandemic will become more apparent during the second half of the year, as government support unwinds and courts reopen.

Ric Traynor, executive chairman of Begbies Traynor said: “Many of these support measures will have simply delayed the inevitable, with the can being firmly kicked down the road.”

“Many businesses will have to deal with a toxic mix of reduced sales and increased levels of debt, plus the complications of dealing with staffing levels that cannot be supported by the level of business going forward.”

While retail sales in the UK jumped 14 per cent in June as shops started to reopen, the number of online retail businesses in distress has increased by seven per cent to 9,756 businesses since the start of the year.

Read more: Nearly all SME lending is through emergency coronavirus funding

The story is similar in the bar and restaurant sector, with a four per cent increase in the last quarter alone. Pubs bore the brunt of the increase, with a six per cent rise in the number of firms in significant distress.

More than 17,000 real estate and construction firms have fallen into distress in the last quarter. With six per cent more commercial builders and four per cent more housebuilders in significant financial distress.

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