Thousands of firms are now at risk of insolvency, suggesting there could be an increase in redundancies in the months to come.
Data from business recovery firm Begbies Traynor, which was seen by the BBC, showed that the number of organisations in “critical financial distress” has risen by 25% in the past three months to nearly 38,000.
It defined firms in critical financial distress as those with county court judgments exceeding £5,000, which often signals that an organisation could soon go bust.
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Julie Palmer, a regional managing partner at Begbies Traynor, said many firms were experiencing financial distress because of higher inflation and borrowing costs, coupled with weaker consumer demand.
She said: “Businesses that had loaded up on debt at rock-bottom rates, and were only able to cling on during the pandemic thanks to government support, must now deal with a financial reality check as higher interest rates hit working capital for the foreseeable future.
“Taken together with stubbornly high inflation and weak consumer confidence, many of these businesses will inevitably head towards failure.”
The news came as Yorkshire-based windows and doors company Safestyle fell into administration after it failed to find a buyer. Around 680 employees have been made redundant, with the remaining 70 kept on board in the short term to help wind down the business.
Rick Harrison, managing director at administrator Interpath Advisory, said: “These are really challenging times for companies across the home improvement market. After seeing strong sales during the Covid lockdown periods, many companies are seeing trading being impacted by the cost of living crisis and soaring costs.
“Unfortunately for Safestyle, and despite the tireless efforts of the management team over recent months, these challenges have proven too difficult to overcome.
“This will be particularly devastating for the company’s employees, as well as the many self-employed contractors who worked on behalf of the company. Our immediate priority will be to provide support to those impacted by redundancy, including supporting them in making claims to the Redundancy Payments Service where relevant.”
Lee Parkinson, a GMB union organiser, said: “Safestyle UK workers have been completely let down by mismanagement from the very top of the business. More than 600 workers have been cruelly cut off from work, weeks before Christmas, with no guarantee that they will even get last week’s paycheck. The impact of this closure on the community of Barnsley cannot be overstated. It is simply devastating. We need urgent answers on where the money has gone.”
According to the latest figures from the Insolvency Service, the number of company insolvencies in England and Wales in September 2023 – 1,967 – was 17% higher than in September 2022. In Scotland 87 companies were registered as insolvent, 16% lower than a year before, and there were 37 insolvencies registered in Northern Ireland, up 67%.
In September 2023, 196 employers in Great Britain submitted HR1 forms informing the government about potential redundancies, totalling 12,538 jobs. This was compared with 207 employers and 13,694 jobs in September 2022.
Jonathan Andrew, global CEO of invoice finance and factoring company Bibby Financial Services, said: “The cost-of-doing-business crisis is a very real threat to the UK’s economic recovery and, in particular, the UK’s SME community.
“The construction, hospitality and retail sectors have been the first to feel the pinch, but the full picture of SMEs’ viability will become clearer after Christmas. By then, we could be staring down the barrel of a gun for insolvencies. Without further support from both the private and public sectors, it’s possible we could see insolvencies exceed the last financial crisis.”
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