The survey monitors the numbers of companies experiencing difficulties in two categories: “Significant Problems” * and “Critical Problems” **. Of those companies experiencing the more serious “Critical Problems”, Red Flag’s research shows that approximately 15% will enter into a formal insolvency procedure within 12 months. www.redflagalert.com
All eight of mainland Britain's regions showed an increase in Critical Problems. Comparing quarterly averages of companies with Critical Problems, the region experiencing the greatest increase in 2007 was the West Midlands, up 43.1% on 2006, while the smallest increase was in the North West, with 15.3%.
The full list is as follows:
Region % Increase in Critical Problems in 2007
West Midlands 43.1
North East England 25.3
South East England and East Anglia 22.0
South West England and South Wales 18.0
East Midlands 16.1
North West and North Wales 15.3
The average increase of companies facing Critical Problems for all regions during 2007 was 23% up on 2006; this represents a total of 5,159 companies compared with 4,201 in 2006.
Companies showing minor distress indicators across all regions totalled 426,023 in 2007 compared with 375,493 in 2006, an increase of 13%. This compares with a figure of 31% for the previous year, further evidence that the insolvency market had stabilised during 2007, as indicated in last years Insolvency Outlook report from Euler Hermes.
Much of the increases in adverse actions occurred in the final quarter of 2007. This concurs with the Bank of England’s Fourth Quarter ‘Credit Conditions Survey’. The survey showed a deepening of the current ‘Credit Crunch’ with lenders reporting that credit availability had reduced significantly during Q4 and that defaults by medium-sized PNFCs (Private Non-Financial Corporations) had also risen, in line with lenders expectations in Q3.
Ric Traynor, Executive Chairman of Begbies Traynor Group, commented:
“The combination of adverse economic conditions in the final quarter of 2007 has clearly had a major impact on credit conditions, with a significant reduction in credit availability and an increase in defaults. This trend is expected to continue into this year and will undoubtedly lead to reduced lending, which in turn could push more companies into insolvency over the coming months.”
* Companies with “Significant Problems” are those with either a court action and/or average, poor, very poor insolvent or out date accounts.
** Companies with “Critical Problems are those with CCJs totalling £5,000 or more and/or Wind-Up Petition related actions
Summary: Begbies Traynor, the UK’s leading business rescue, recovery and restructuring specialist, today publishes its quarterly Red Flag A!ert statistics, which monitor adverse actions and other corporate distress signals (such as the issue of county court judgements and wind up petitions). These show that the number of UK companies facing significant difficulties has increased substantially over this time last year.
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