Lockdown business failures lead to £800m insolvent debt pile
Over 4,000 businesses have collapsed in the six months since the lockdown, leading to £773.46m in insolvent debt from outstanding invoices, new research has found.
Corporate distress data analysts Red Flag Alert, which compiled the research, found that these insolvent businesses tended to operate within the hospitality, construction, retail, logistics and real estate sectors.
With an average individual debt of £28,501, a further 227 firms in these industries are at very high risk of failure, Red Flag Alert said.
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Construction was found to be the sector with the most lockdown business failures, with 1,884 firms collectively owing £364m to suppliers. This was a rise from £235m of insolvent debt during the same period last year.
A further 120 companies in the construction industry are at high risk with around half of them predicted to cease trading within seven days.
Retail followed closely, leaving £316m of insolvent debt following failures within the sector.
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“When a company goes into administration, understandably the immediate focus is on the amount of loss of a brand or legacy and the jobs potentially under threat,” said Mark Halstead, a partner at Red Flag Alert.
“The story that’s not often told is the significant pressure this will place on the businesses in their supply chain and the sector that they operate within.
“The reality is that this research shows more than 25,000 businesses have experienced unpaid bills since lockdown because of the domino effect of these business failures.
“The overall figures seem stark, but in fact they are lower than the same period last year in terms of the total number of company failures and the level of insolvent debt across these sectors as a whole. Government support for businesses has created a limbo period.
“Unfortunately, the current outlook is that we expect high levels of business failures and payment defaults during the next six months which will create more stress in these key sectors.
“It’s never been more important to understand the strength of the companies within your supply chain and any to pinpoint any potential distress.”
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