Tue, 26 Oct 2021 | BUSINESS NEWS
According to the latest research by restructuring firm Begbies Traynor, over half of UK firms are struggling with “toxic debts” that they may be unable to repay over the coming year. According to Begbies Traynor, businesses in the hospitality and property sectors are especially vulnerable to such debts.
Begbies Traynor partner Julie Palmer said that there had been a growing number of inquiries about prepack administrations. Prepacks are an insolvency process in which a deal to sell the business and/or its assets is arranged prior to the appointment of administrators.
During the pandemic, government-backed loan schemes prevented huge numbers of businesses from collapsing, pushing administrations to incredibly low levels. However, these loans have seen businesses rack up huge debts and, with repayments now falling due, insolvencies have started to increase.
According to Insolvency Service figures, there were 1,446 company insolvencies in the UK in September, an increase of 100 from the previous month and a 56 per cent increase on September 2020. Julie Palmer commented: “The high percentage of companies with toxic debt across sectors and the rising debt of corporate UK is alarming.”
Palmer also warned that many businesses were only just beginning to assess whether they could afford to make their repayments, which could lead to a further acceleration in insolvencies. On top of this, Palmer forecast that creditor action against businesses will increase as courts reopen and added that HMRC would also begin pursuing a year of deferred taxes as support schemes come to an end.
Regarding toxic debt and creditors, Begbies Traynor Director of National Creditor Services Brendan Clarkson said: “The longer they do not have payment, the longer they themselves are at risk of transforming into ‘zombie’ businesses racked with debt and trying to gather income to service that debt.”
The Bank of England has also recently warned about the potential for a wave of insolvencies as debts are due and government support ends. It said: “The increase in debt, though moderate in aggregate, has likely led to increases in the number and scale of more vulnerable businesses. As the economy recovers and government support, including restrictions on winding-up orders, falls away, business insolvencies are expected to increase from historically low levels.”
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