Report warns of 'Zombie' firms set to collapse when state aid ends
THE number of financially distressed businesses in Northern Ireland has soared by nearly 60 per cent in the last year, with 11,600 firms seeing their fortunes worsening, new data shows.
And the report's authors say a major concern is that the government's financial support may be simply propping up unviable ‘Zombie' businesses and, once this state aid ends, there will be a flood of insolvencies.
The latest Red Flag alert data from corporate restructuring specialist Begbies Traynor shows a 57 per cent year on year rise in the early signs of financial distress with 11,600 businesses in Northern Ireland now affected.
Between January and March, ‘significant' distress (which indicates early signs of financial problems) rose by 18 per cent compared with the last quarter of 2020.
In contrast, there was a decrease 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), showing that the government's insolvency prevention measures are having an impact.
‘Critical' distress among Northern Irish businesses fell by 78 per cent year on year, and saw a drop of 31 per cent compared with the previous quarter.
“These latest figures are particularly concerning given the fact that the government's insolvency prevention measures are still in place,” said Lawrence O'Hara, who leads Begbies Traynor in Northern Ireland.
“After more than a year of financial hardship caused by multiple lockdowns and restrictions, the true extent of the growing pressures facing businesses is still largely hidden.
“And although there was a striking fall in instances of advanced distress in the last quarter, this was almost exactly mirrored by the rise in early distress.
“Unfortunately, this indicates that while the government has been successful in delaying liquidations and bankruptcies, there is still a huge amount of financial trouble to be faced further down the line, probably later this year, once these and other support measures come to an end.
“In addition, as the courts struggle to catch up on the backlog, there are likely to be many more actions against indebted companies in the pipeline.”
Sectors with the highest increases in ‘significant' distress were leisure & cultural (up 33 per cent), financial services (up 29 per cent), construction (up 26 per cent) and industrial transportation (up 23 per cent).
Mr O'Hara added: “There are a number of challenges facing beleaguered businesses, from the threat of further waves of the Covid-19 pandemic to the disruption caused by Brexit, and the fact government support may be propping up unviable ‘zombie' businesses.”