Businesses in “Critical Distress” in UK, Bankruptcies Surge

“Zombie firms,” kept alive by low interest rates, account for up to 14% of UK companies.

By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.

The number of companies in the UK going into administration — which is when a licensed insolvency “administrator” is appointed to manage a company’s affairs, business, and property for the benefit of the creditors — jumped by 21.8% in Q1 2019 to 451, the highest quarterly level in five years (although the number of administrations is still much lower than during and after the Financial Crisis).

In Q1, the number of small businesses going into liquidation rose 5.1% compared to the same period a year ago, to 4,187. Liquidations also rose  6.3% from the fourth quarter of 2018, according to The UK Insolvency Service.

“Both the total number of new company insolvencies as well as underlying total insolvencies have reached their highest levels since 2014,” said Mike Cherry, chairman of the Federation for Small Businesses. “These latest figures show the immense strain that small businesses are currently under with rising employment costs and unfair business rates as well as significant uncertainty as a result of the Brexit process.”

The number of companies classed as being in “critical distress,” often a precursor to insolvency, surged 17% in the first quarter from a year earlier, to 484,000 mostly small and medium-sized businesses, according to data compiled by financial adviser Begbies Traynor Group Plc. These businesses in “critical distress” now account for about 14% of all active businesses in the UK

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