Member Article

Creeping’ insolvency in Northern Ireland as Government’s Covid support measures hide wider distress

In Northern Ireland, as in the UK as a whole, there continues to be a marked rise in early signs of insolvency year on year according to the latest Red Flag Alert data published today (28 July 2021) by leading business rescue and recovery specialist Begbies Traynor. Despite growing business distress, it is feared that the real picture is even more bleak with financial problems being artificially suppressed by the Government’s ongoing support measures, together with the pragmatic approach of lenders and HMRC.

The quarterly Red Flag Alert research, which monitors the UK’s financial health, reveals that in the second quarter of 2021, in Northern Ireland levels of ‘significant’ or early signs of distress rose by 28% compared with the same period the previous year, slightly higher than the rest of the UK which saw a 24% rise. In Q2, almost 10,000 businesses in the province and 650,000 businesses across the whole of the UK, felt the impact of this type of distress.

However, the figures also showed some levelling off of financial problems with instances of ‘significant’ distress in Northern Ireland falling by 15% since Q1 2021, and again this was reflected by the UK-wide picture with a decrease of 10% quarter on quarter.

Lawrence O’Hara, who leads Begbies Traynor in Northern Ireland, commented: “It is not only concerning to see rising levels of early signs of distress compared with last year, but we are also worried that the true extent of financial problems being stored up by businesses here and across the rest of the UK, is actually much worse than the figures indicate. The flood of insolvencies widely predicted post-pandemic has not come to pass with relatively low numbers of businesses failing in the first six months of 2021. However, the Government has extended its Covid support measures and these, together with a supportive lending environment, have helped firms to trade through the pandemic and masked underlying distress.

“With the prospect of the Job Retention Scheme among others starting to be wound down in the autumn, the real scale of distress after 18 months of lockdowns and disruption will soon be revealed. As businesses struggle to cope with the impact of the pandemic along with Brexit, it is vital that directors proceed with caution and enlist professional advice to help navigate through this extremely difficult trading environment.”

The data also shows that in Northern Ireland every one of the 22 sectors surveyed once again saw ‘significant’ distress increase year on year. The financial services sector along with automotive were among the worst affected, both seeing a 45% hike in early distress in the province; leisure and culture rose by saw a 39%; and construction was up by 35%. Telecoms, hotels and accommodation, and utilities fared better with rises of 15%, 11% and 9% respectively.

In contrast, Northern Ireland saw an increase in the number of instances of the more advanced ‘critical’ distress (which refers to businesses that have had winding up petitions or CCJs totalling more than £5,000 against them). In the province, this type of distress grew by 33% compared with the previous quarter, compared with a fall of 10% across the whole of the UK. Again, this is likely to be due to the impact of the Government’s insolvency prevention measures.

Lawrence O’Hara continues: “While we are all hoping that the worst is behind us in terms of Covid business disruption, the future is far from secure with further economic uncertainty as we face the risk of more waves of infection both here and overseas. In addition to the pressures of the cost of staff coming off furlough and the prospect of repaying CBILS and Bounce Back Loans, firms are also facing a perfect storm of business-critical issues from shortage of staff to problems with transportation of goods and scarcity of products and materials.”

This was posted in Bdaily's Members' News section by Emma Kilmurray .