A total of 5,179 companies in the UK were facing critical problems in the second quarter of this year, representing liabilities of nearly £60bn, according to the latest Red Flag report.
The report, issued on 29th July, shows a 12 per cent rise in the number of companies in a critical financial condition compared to the first three months of 2011.
Travel and tourism, hotels and accommodation and retail sectors continue to suffer with further decline. The number of companies suffering critical financial problems in the hotels and accommodation sector increased 47 per cent and for the travel and tourism industry, this figure spiked by 31 per cent. The retail sector also saw a 17 per cent increase.
But while these industries remain highly vulnerable, the report shows a 48 per cent fall, quarter on quarter, in the number of businesses facing ‘significant’ financial problems. This fall is an apparent glimmer of good news, but could be indicative of weaker businesses actively moving from significant to critical financial problems - and ultimately to insolvency, as well as seasonal factors which typically impact on the first quarter figures.
HM Revenue and Customs is taking a more robust stance. As the level of support from the revenue is gradually decreased, it is increasingly evident that businesses using the scheme are now struggling to cope with current trading conditions. Many companies which made use of the time to pay scheme have failed to achieve a turnaround and are now seeking a second deferral agreement with HMRC.
However, the government is finding it difficult to give second chances and the number of winding up petitions issued by HMRC in the second quarter of 2011 has more than doubled since the first quarter.
Property also showed no signs of improvement, according to the report. The level of companies in this sector showing signs of critical distress views was up by 42 per cent in the second quarter compared to the first.
There was also a 41 per cent rise in the haulage and logistics sector during the same period.
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