Latest Red Flag survey from Begbies reveals 7,265 firms in Merseyside ended the first quarter of 2020 in ‘significant distress’ – with the worst still to come. Tony McDonough reports

There could be as many as 10,000 Merseyside firms in ‘significant financials distress’ by the end of the summer, insolvency experts Begbies Traynor are warning.

Its latest Red Flag survey, covering the three months to the end of March, reveals 7,265 firms in Merseyside ended the quarter in significant distress, a rise of 5% on the final quarter of 2019, with companies in construction and property the worst affected.

Chancellor Rishi Sunak says the spread of COVID-19 and the measures needed to combat it have caused an “economic emergency” and this is illustrated in the latest data from Begbies. And the full impact is still to come.

Begbies’ definition of a business in significant distress is one with minor County Court Judgements (less than 5,000) filed against them. One in critical distress will have minor CCJs of more than £5,000 and is often a precursor to formal insolvency.

It reports that 19 out of the 22 key business sectors in Merseyside saw an increase in levels of financial distress in the first quarter of 2020. Hotels and accommodation saw the biggest percentage quarterly increase of 19% while the the leisure and cultural sector saw an increase of 13%.

Construction (996), real estate and property (934) and support services (1,204) make up the largest volumes of distressed companies. Collectively, these three key sectors of the regional economy comprise of 3,134 companies – or 43% of all Merseyside-based companies in significant distress.

The year-on-year comparison was even bleaker with a 7% increase in the number of Merseyside firms experiencing significant financial distress compared to the same time last year.

More than half a million companies (509,315) in the UK are now operating under significant financial distress, according to the research by Begbies Traynor. That’s the highest number since this research began,

Keith Tully, partner at Begbies Traynor in Liverpool, said: “These figures make grim reading and offer more insight into the shape of things to come for many businesses in our region.

“Even, without accounting for the full economic impact of lockdown they are troubling. At this rate of acceleration, coupled with the effect of lockdown, we could be looking at 10,000 by the end of the summer.

“Many of these companies were teetering on the brink of collapse before lockdown and it is not unreasonable to conclude that thousands of these companies will simply not survive without major restructuring of their operations and financial arrangements.

“The knock on effect of these companies fighting for their lives is that suppliers get left unpaid and find themselves pulled into deeper water.

“Company directors have a responsibility to act swiftly, get professional advice, restructure, refinance and make use of all the Government support available to ensure they still have a business when we all emerge from the other side of this crisis.”