The number of North East Insolvencies jumped by 50% over the last three months, latest figures show. According to analysis by insolvency and restructuring trade body R3, there were 264 insolvency-related activities during the second quarter of the year, which followed on from 249 in the preceding three months. The total for this year’s second quarter is 50% higher than for the figure for Q2 last year (176).
Insolvency-related events – which includes liquidator appointments, administrator appointments and creditors’ meetings – reached 513 so far this year, compared to just 442 in the first half of 2022, a rise of 16%. Research into the new data, which was provided by CreditSafe, showed almost 12,300 North East businesses were holding over 150,000 overdue invoices on their books during June that should already have been settled. Both figures are in line with numbers for the preceding month.
The insolvency statistics were released at the same time as figures showing the number of new businesses set up in the North East in the first half of the year has grown by 4% cent on the same period as last year, with 4,164 new businesses being established between the start of April and the end of June.
Chris Ferguson, North East chair of R3, who is head of recovery and insolvency at Gosforth-based RMT Accountants & Business Advisors, says: “While it’s always encouraging to see an increase in the number of new North East businesses, the economic climate remains challenging. Late payment problems remain a consistent theme for many North East firms, and delayed payments can very often be a major contributory factor to the failure of many otherwise-viable businesses. So withholding payments to suppliers clearly has a far wider impact than just on a distressed business itself.
“With inflation remaining high, interest rates continuing to rise and the inevitability of increased winter energy costs not very far away, it will not be an easy ride for businesses to navigate the difficult economic situation that we’re all experiencing at the moment.
“The second half of the year is likely to be just as challenging as the first, which makes it even more important for business owners to have good visibility of financial and management information, so they can react as soon as they begin to see any potential problems arising. Talking about your financial concerns isn’t easy, but the earlier business owners seek qualified advice, the more options they will have for putting things right.”
The figures follow a number of high profile administrations and liquidations in the first half of 2023, including Britishvolt, Tolent, Metnor Group, Great Annual Savings and Howard Russell Construction.
Meanwhile, troubled “zombie” companies which are struggling with debts are expected to be wiped out following the rise in interest rates, insolvency specialist Begbies Traynor says. The prediction comes after more than 2,500 UK firms filed for insolvency in May – the highest figure since 2009.
Julie Palmer, regional managing partner at Begbies Traynor, said many of the so-called “zombies” – companies battling against debts and only avoiding bankruptcy through cheap borrowing costs – will have failed by the end of 2024.
She said: “Companies showing signs of distress at the moment are typically having winding-up petitions served against them, or showing county court judgements, so that impacts a company’s ability in respect of its customers and its suppliers. So those are real stress indicators and experience shows that over time a number of those businesses will eventually fail.”
Asked about the consequences for the UK economy if the zombie firms go bust, she added: “We’ve carried a lot of these businesses since the financial crisis in 2008 because of the sustained low interest rates that we’ve had – that’s an unusual feature, normally these companies would have failed by now. The failure of these companies can actually be a good thing because, what you tend to find is better capitalised companies will pick up the market space vacated by these business. That’s when we begin to see a little bit of a recovery, a spike in growth.
“Unusually we do have this very low unemployment rate, so in a sense there’s never been a better time to let these companies fail because we’ve got a skills gap across most sectors and those jobs will be recirculated with companies making better use of their working capital.”