Member Article

Insolvency risks rising across the board for North East businesses

The risk of North East firms getting into financial difficulty in the next year is rising across almost every business sector monitored by insolvency and restructuring trade body R3.

All but one of the 11 regional industry sectors that R3 reviews on a monthly basis for its business stability rankings have seen the proportion of firms therein with a heightened risk of insolvency increase in both the last month, and during the preceding three months, with only the restaurant sector holding steady since May.

The North East agriculture industry has registered the highest increase in its levels of business instability in the last quarter, with a rise of four per cent since May, while regional firms in six of the 11 key industries that R3 monitors currently have a worse rate of business stability than the national average for their respective sectors.

Despite last month’s rise, the region’s restaurant and pub sector have the second and third lowest risks respectively, of getting into financial difficulty in the next year of any such businesses anywhere in the UK, while the North East’s professional services, transport and haulage, and tourism operators sectors are all outperforming their respective national average.

After well over a year, the North East construction sector has finally moved ahead of South East England, although it still remains the second least stable of all construction sectors within the UK, while the region’s retail, manufacturing and technology sectors are all faring worse than their respective national averages.

Overall, 28% of all North East businesses have a heightened risk of entering insolvency in the next year, which is the same as this month’s cross-sector national average, but two per cent up on where it stood back in May.

R3’s insolvency risk tracker is compiled using Bureau van Dijk’s ‘Fame’ database and measures companies’ balances sheets, director track records and other information to work out their likelihood of survival over the next 12 months.

Neil Harrold, chair of R3 in the North East and a partner with Hay & Kilner Law Firm, says: “The uncertainty on many fronts that is swirling around in the UK and wider global economy at the moment may be having an impact on confidence across the regional economy, which is in turn contributing to the slow but steady rises we’ve seen here in levels of business instability.

“The situation is far from all doom and gloom, however, and as we move further into the second half of the year, we can reasonably expect to see the regional hospitality industries continuing to make further progress in what is traditionally their busiest period.

“Whatever sector they’re in, it’s essential that all management teams are alert to any potential financial issues that they can see coming down the track, and that they proactively seek qualified advice on the best ways in which to mitigate or avoid them before it’s too late to do so.”

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