Latest data from insolvency specialist Begbies Traynor shows a rise in firms in ‘critical distress’ in Liverpool city region and across the North West. Tony McDonough reports

An increasing number of companies in Liverpool city region and across the North West are in ‘critical distress’, new data shows, with property and construction worst-hit.

In January, insolvency specialist Begbies Traynor said firms across Liverpool city region were facing an “insolvency storm” as pandemic support schemes such as furlough and COVID grants came to an end.

Now with soaring inflation and raw material costs in the mix that warning is becoming a reality. Begbies’ latest Red Flag Alert report shows 240 firms across the North West had moved from being in ‘significant distress’ to ‘critical distress’ in the first quarter of 2022. This was a 22% increase in the same three months in 2021.

A company classed as being in significant distress is one with minor CCJs (of less than £5,000) filed against them or which have been identified by Red Flag Alert’s credit risk scoring system which screens companies for a sustained or marked deterioration. It measures working capital, contingent liabilities, retained profits and net worth.

Critical distress is defined as businesses with minor CCJs (of more than £5,000) filed against them. Begbies confirms 55,728 remain in ‘significant distress’ with 8,996 of those being from the Liverpool city region alone.

Property (1,347), construction (1,285) and support services (1,373) were the three sectors that contained the highest volumes of distressed firms in the Liverpool city region from the 22 analysed in the first quarter of 2022.

Sectors in the North West region seeing a rapid triple-digit percentage increase in critical distress against the previous quarter (Q4 2021 include bars and restaurants (217% increase) and food retail (117% increase).

Nationally, more than 500,000 firms are now in significant financial distress (581,596) and the most recent County Court Judgements (CCJ) data revealed 11,673 of the rulings in March – up 179% on the monthly average for the previous two years – and the highest level in a single month in five years.

Keith Tully, partner at Begbies Traynor in Liverpool, said: “Inflation, the end of pandemic support schemes and mounting debts are the three key issues at the root of these levels of financial distress we’re seeing in the Liverpool city region. Most businesses are prepared for costs to continue rising during the remainder of this year.

“All sectors of our local economy face big challenges in 2022 and company directors will need to act quickly and proactively in the event of a sudden cashflow squeeze or demands from creditors.”