The number of financial services, property and construction firms facing court action because of debts has more than doubled, new research has shown.
Insolvency firm Begbies Traynor’s latest Red Flag Alert report shows a surge in firms with “critical” problems – County Court Judgments (CCJs) totalling more than £5,000 or pending wind-up petitions – as the credit crunch continues to hit.
Figures for the first quarter of 2009 show a 29.7 per cent rise in West Midlands firms that were facing critical problems compared with the end of 2008.
John Kelly, partner at Begbies Traynor in Birmingham, said: “The findings of our latest Red Flag Alert echo the findings of other recent surveys, showing as they do increasing business failures.
“The reduced rate of decline in quarter on quarter adverse actions is some good news. However, this is not the same as a recovery. Last week’s Budget tax increases and public spending cuts are unlikely to make life any easier for struggling companies.
“Regrettably experience tells us that company and personal insolvencies, like unemployment, are a lagging indicator, and are therefore likely to continue to rise through the recession. It is generally acknowledged that signs of slowing deterioration may be beginning to show in certain parts of the economy.
“The Red Flag statistics support that assumption, showing a slower rate of growth in the number of companies facing problems in some sectors on a quarter on quarter basis. Overall, however, the recession now being experienced by the UK is set to continue and financial hardship is likely to be felt by many businesses during the remainder of 2009 and into 2010.”
The Red Flag Alert report also showed a 9.6 per cent increase in the number of West Midlands companies having “significant” debt problems – facing court action or with average, poor or insolvent accounts – across the quarter.
Firms in the finance, property and construction sectors have, unsurprisingly, been hit the worst as the credit crunch has taken its toll on banks and the property market.
Property services firms have seen the highest increase of “critical” in the past year, at 134 per cent, while there has been a 126 per cent rise in construction and a 123 per cent rise among finance companies.
Nationally, the companies showing signs of stress rose to 84,648 in March 2009 compared to 53,240 a year ago, an increase of 59 per cent.
But a spokesman for Begbies Traynor said there were signs of improvement for some sectors. IT and financial services businesses showed slight declines in companies with critical problems compared to the final quarter of 2008 while print and packaging, manufacturing, professional services and transport companies had only a five per cent rise in financial problems.
News of growing financial instability comes after analysis by professional services firm PricewaterhouseCoopers showed a 13 per cent rise in West Midlands businesses being declared insolvent last quarter. There were 614 business insolvencies in the region in the first three months of the year, compared with 542 in the previous quarter.