Latest Red Flag report from insolvency experts Begbies Traynor reveals a big jump in Merseyside businesses in ‘significant financial distress’ – with hospitality firms hardest hit. Tony McDonough reports

More than 7,000 businesses in Merseyside are now in “significant financial distress” with the hospitality sector being hit hardest by the coronavirus crisis.

New data from insolvency experts Begbies Traynor reveals that the second quarter of 2020 saw a 9% year-on-year rise in the number of city region firms in significant financial distress to 7,413.

And, in its latest Red Flag report, Begbies warns that worse figure could be coming down the line. Reduced court activity due to COVID-19 has substantially reduced the number of CCJs and other legal action being taken against indebted companies.

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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.

Key sectors of the Liverpool city region economy have seen double-digit increases in distress over the past 12 months. Food and beverages has seen a 15% year-on-year increase (up from 88 firms to 101), the leisure and cultural sector has seen an 14% increase (from 169 to 192) and property a 21% increase (from 788 to 952).

The shuttering of bars and restaurants has contributed to a 9% increase in distress in the sector with 353 (up from 324) teetering on the brink across the region. Keith Tully, partner at Begbies Traynor in Liverpool, said: “These figures are alarming but the real pain is likely to begin when the Government furlough scheme is withdrawn, bounce-back loans are spent and the courts re-open for enforcement action.

“This crisis will force many companies out of business. The reality is that many businesses across our region are unviable due to high levels of debt and poor sales. Company directors must take swift action if they’ve exhausted their Government support options and levels of business continue to decline over the coming weeks.

“On a positive note, we have already seen many businesses restructure their operations and finances and we expect to see more in the months ahead. Crisis always creates opportunity and businesses will have to be creative and bold to make changes in order to thrive in the post-COVID climate.”